An LLC isn’t a tax category — it’s a legal structure that can be taxed in four different ways. By default the IRS taxes it as a pass-through. You can elect to have it taxed as a corporation instead. For most non-resident founders, the default is the right answer and you should leave it alone.
Here’s what each option is, who can use it, and when changing makes sense.
The default is automatic
You don’t choose your LLC’s tax treatment when you form it. The IRS assigns a default based on how many owners it has, and that default applies unless you actively file to change it.
So an LLC has four possible tax identities: disregarded entity, partnership, C-corporation, or S-corporation. Two are defaults; two require an election. Let’s take them in order.
Default: disregarded entity or partnership
If your LLC has one owner, the IRS treats it as a disregarded entity. That means the IRS looks straight through the company and taxes the income as if it were the owner’s. There’s no separate corporate income tax.
If your LLC has two or more owners, the default is a partnership. The company files an information return (Form 1065) and passes profits and losses through to the members, who report their share.
Both are pass-through treatments — the company itself doesn’t pay US income tax on its profits. This is what makes the default attractive, and why most founders never need to change it.
A foreign-owned single-member LLC is disregarded for income tax — but it is not invisible to the IRS. It must file Form 5472 attached to a pro-forma Form 1120 every year, reporting transactions between the LLC and its foreign owner. Miss it and the penalty starts at $25,000. “Disregarded” is an income-tax concept, not a free pass on paperwork.
This catches a lot of non-residents off guard. They hear “disregarded entity, no US tax” and assume there’s nothing to file. There is. We break down exactly what’s owed and what’s filed in Form 5472 for foreign-owned LLCs and US LLC taxes for non-residents.
Electing S-corp — and why non-residents usually can’t
The S-corp election (filed on Form 2553) is popular advice in US founder circles because it can reduce self-employment tax for an active owner who pays themselves a salary. For non-residents, it’s almost always off the table.
The reason is a hard eligibility rule: an S-corporation’s shareholders must all be US citizens or US residents. A non-resident alien cannot be an S-corp shareholder. If you live abroad and aren’t a US tax resident, you can’t elect S-corp for your LLC — full stop. The few exceptions involve being a US resident for tax purposes, which most cross-border founders aren’t.
The S-corp’s main benefit is cutting self-employment (Social Security and Medicare) tax for US owners. A non-resident with no US-source effectively connected income generally isn’t subject to that tax in the first place — so even if you could elect S-corp, the headline benefit often wouldn’t help you.
Electing C-corp — and when it’s worth it
You can elect to have your LLC taxed as a C-corporation by filing Form 8832. This makes the LLC a separate taxpayer: it pays the 21% federal corporate income tax on its profits, and then owners pay tax again on dividends they take out. That’s the famous double taxation.
For most founders that’s a worse deal than pass-through. But C-corp taxation makes sense in specific cases:
- Raising venture capital. US investors and accelerators expect to buy stock in a C-corp, not membership interests in an LLC. If you’re raising institutional money, you’ll likely convert to a Delaware C-corp anyway.
- Reinvesting profits. If you keep earnings inside the company to grow rather than paying yourself, the flat 21% corporate rate can beat high personal rates — and there’s no dividend tax until you distribute.
- Specific treaty or structuring reasons. Some cross-border setups use a C-corp deliberately. That’s a conversation with a tax advisor, not a default move.
We compare the structures in depth in LLC vs C-corp for non-resident founders.
How the four options compare
| Default | C-corp | S-corp | |
|---|---|---|---|
| How to get it | Automatic | File Form 8832 | File Form 2553 |
| Non-resident eligible | |||
| Company pays US income tax | |||
| Double taxation | |||
| Best for | Most non-residents | Raising VC, reinvesting | US-resident owners only |
What most non-residents should do
Leave it on default. A single-member foreign-owned LLC as a disregarded entity is the simplest structure that exists: no US corporate tax, pass-through treatment, and a predictable annual filing in Form 5472 plus the pro-forma 1120. A multi-member LLC as a partnership is nearly as clean.
Don’t elect C-corp unless you have a concrete reason — raising US venture capital or deliberately retaining earnings. Don’t try to elect S-corp; you almost certainly can’t, and it wouldn’t help if you could. The instinct to “optimize” the tax structure on day one usually adds cost and complexity without saving anything.
What actually trips non-residents up isn’t the election — it’s missing the filings the default requires. Get the EIN, keep the company and owner transactions documented, and file Form 5472 on time. That’s the part we handle, so the default treatment stays clean instead of turning into a $25,000 surprise.
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