Tax Election

A multi-owner LLC is automatically taxed as a partnership by default, while LLCs with one owner are taxed like sole proprietorships (one-owner businesses). However, LLCs may choose to be taxed as a C corporation or S corporation. This is accomplished by filing a document called an election with the IRS. Once this is done, as far as the IRS is concerned, the LLC is the same as a corporation and it files the tax forms for that type of entity.

Most LLCs stick with their default form of taxation. But electing to be taxed as an S corporation can have tax advantages. 

Being treated as an S corporation may provide opportunities for tax planning to minimize the overall tax liability for your business and you. S corporation tax treatment can provide a way to take some money out of your business without paying employment taxes. This is because you do not have to pay employment tax on distributions (dividends) from your S corporation—that is, on earnings and profits that pass through the corporation to you as an owner, not as an employee in compensation for your services. The larger your distribution, the less employment tax you'll pay. The S corporation is the only business form that makes it possible for its owners to save on Social Security and Medicare taxes. Historically, this has been the main reason S corporations have been popular.