NAICS Code

A NAICS code, from the North American Industry Classification System, is a six-digit number that describes what your business does. For example, codes exist for online stores, software publishing, management consulting, and freight trucking. Governments use these codes for statistics, and the IRS uses a version of them as the principal business activity code on tax returns.

Your foreign-owned LLC reports this code in more than one place. Form 1120 asks for the business activity code in Schedule K, Form 1065 asks for it on page one, and Form 5472 asks for the principal business activity and its code for both the reporting corporation and, in some parts, the related party. Even on a pro forma 1120 filing, the Form 5472 itself still needs an accurate description of what the company does.

Choosing the code is simpler than it looks. Pick the activity that produces the largest share of your revenue and find its closest match in the code list in the IRS form instructions. A founder in Vietnam running a Shopify store through a US LLC that earned $60,000 selling home goods would use the code for electronic shopping. If the business does several things, the biggest revenue stream wins; you only report one code.

There is no penalty for a reasonable but imperfect code choice, and you can use a different code next year if the business changes. Still, take it seriously: a code that wildly mismatches the transactions on your Form 5472, filed by April 15 for a single-member LLC or with the March 15 Form 1065 for a partnership, can invite questions. A consistent, sensible code keeps your filing boring, which is exactly what you want.