C-Corporation Election
Definition
A C-Corporation election is a tax classification chosen by an LLC that forces the IRS to tax the business as a traditional C-Corporation. To make this election, the LLC files IRS Form 8832 (Entity Classification Election). While the business remains an LLC under state law, it is subjected to corporate tax rules at the federal level.
Why it matters
Most LLC owners avoid C-Corp taxation because it triggers "double taxation"—the corporation pays a flat 21% federal tax on its profits, and then the owners pay individual dividend tax when they take money out. However, some LLCs make a C-Corp election because they plan to reinvest all profits back into the company, allowing them to take advantage of the flat 21% corporate rate rather than having profits pass through to their potentially higher personal tax bracket.
Example
A software startup formed as an LLC intends to raise venture capital. Investors often refuse to invest in pass-through entities (like partnerships or standard LLCs). The founders file Form 8832 to make a C-Corporation election, giving their LLC the exact same tax structure as a traditional C-Corp, which satisfies their investors' requirements.