To know your business type, check legal documents like your EIN application or state registration for classifications like Sole Proprietorship, Partnership, LLC, or Corporation, which define ownership and liability; your tax forms (e.g., Schedule C for sole props) also reveal your structure, or you can use your state's business search portal for official registration details. Your business activities and tax filings are the best indicators of your entity type.
To identify the NAICS Code being used for a specific company, visit the US Company Lookup Tool by NAICS.com. To identify the proper code for your company, use the NAICS SEARCH TOOLS to identify the code that best reflects your primary business activity (revenue producing activity.)
Typically, there are four main types of businesses: Sole Proprietorships, Partnerships, Limited Liability Companies (LLC), and Corporations. Before creating a business, entrepreneurs should carefully consider which type of business structure is best suited to their enterprise.
How to Determine What Type of LLC You Have
There are a few different types of LLCs, including single-member LLCs, multiple-member LLCs, and Series LLCs.
Tax Returns: Business tax returns can also indicate the business structure, as different forms are used for different types of entities (for example, Form 1120 for corporations, Schedule C for sole proprietorships, etc.).
Who pays more taxes, an LLC or S Corp? Typically, an LLC taxed as a sole proprietorship pays more taxes and S Corp tax status means paying less in taxes. By default, an LLC pays taxes as a sole proprietorship, which includes self-employment tax on your total profits.
A limited liability company may be classified as an association taxable as either a C corporation or an S corporation. California and federal laws treat these limited liability companies as corporations subject to all corporation tax laws.
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While LLCs and S corporations are both pass-through entities, S corporations may have preferable self-employment taxes compared to the LLC because the owner can be treated as an employee and paid a reasonable salary. Taxes, including FICA, are taken out of that salary.
The "2% rule" for S Corporations treats shareholders owning more than 2% of the company's stock (or voting power) differently for fringe benefits, classifying them like partners in a partnership, not regular employees; this means benefits like health insurance premiums paid by the S Corp must be included as taxable wages on their W-2, rather than being tax-free, though the shareholder can often deduct these premiums as an "above-the-line" deduction. This rule prevents them from participating in tax-advantaged Section 125 cafeteria plans, making benefits like Health FSAs unavailable on a pre-tax basis.
What's the best way to confirm my S corporation registration? Contact the IRS Business Tax Line (800-829-4933) with your EIN ready. Request written status confirmation for your permanent records.
The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A limited liability company (LLC) is a business structure allowed by state statute. Legal and tax considerations enter into selecting a business structure.
S-Corp reasonable salary is the market-rate compensation you must pay yourself before taking distributions, typically ranging from $40,000-$150,000+, depending on your role, industry, and location. The IRS requires this to prevent payroll tax avoidance, with penalties reaching 20% plus interest for non-compliance.
It's recommended that the owner(s) determine the best classification in collaboration with their CPA or tax consultant.