C-Corp Election

A C-corp election means telling the IRS to tax your LLC as if it were a corporation. The company stays an LLC at the state level, with the same name, bank account, and operating agreement; what changes is the tax rulebook. The election is made on Form 8832, and from its effective date the LLC is a C corporation in the eyes of the IRS, paying its own tax at the flat 21% federal corporate rate.

The filing package changes completely. Instead of a pro forma Form 1120 that exists only to carry Form 5472, the electing LLC files a real Form 1120 by April 15 with income, deductions, and a computed tax bill. Form 5472 still attaches whenever the corporation is at least 25% foreign-owned and had reportable transactions, so a $10,000 owner loan or a $5,000 contribution still gets reported, and the $25,000 penalty for skipping still applies. A former multi-member LLC drops Form 1065 and its March 15 deadline in favor of the corporate return.

The trade-off is two layers of tax against control over timing. Suppose the electing LLC earns $100,000: it pays $21,000 in corporate tax, and if it then pays the remaining $79,000 to its foreign owner as a dividend, US withholding of up to 30% can take another slice, unless a tax treaty lowers the rate. Profits kept in the company for growth, though, stop at the 21% layer, which is why founders reinvesting heavily sometimes prefer this setup over a pass-through that pushes all income to the owner every year.

Approach the election as a five-year decision, not a tax-season trick. The 60-month lock on changing classification, the interaction with your home country's taxes, and the loss of the often tax-free default treatment for foreign owners with no US trade or business all argue for running real projections first. Many non-resident founders discover the default disregarded or partnership treatment already gives them the best result.