By Jake Lawson, LLC Formation Strategist
Here’s a question I get at least twice a week: “Jake, I’m forming my LLC and the state is asking for something called a ‘NAICS code.’ What the heck is that, and does it matter?”
My answer: “NAICS codes are the government’s way of categorizing every business in America for statistical purposes. Most of the time, they don’t matter much for your LLC’s legal status, but picking the wrong one can occasionally cause headaches with taxes, licenses, or government contracts.”
After 15 years helping entrepreneurs form LLCs, I’ve seen people spend hours agonizing over NAICS codes that have zero impact on their business, and I’ve also seen business owners pick codes that created real problems later.
Let me give you the straight story on NAICS codes: what they are, when they matter, how to pick the right one, and—most importantly—when you can stop worrying about them.
What Are NAICS Codes, Really?
NAICS stands for North American Industry Classification System. It’s a standardized system used by the U.S., Canada, and Mexico to classify businesses by their primary economic activity.
The Simple Version: The government wants to know what kind of business you run so they can create statistics about different industries. Think of it as the world’s most boring filing system.
The Structure:
- 2-digit codes represent broad industry sectors (like “Manufacturing” or “Retail Trade”)
- 3-digit codes narrow it down to subsectors (like “Food Manufacturing”)
- 4-digit codes get more specific (like “Bakeries and Tortilla Manufacturing”)
- 5-digit codes are very detailed (like “Commercial Bakeries”)
- 6-digit codes are the most specific (like “Fresh Bread and Morning Goods Bakeries”)
Jake’s Reality Check: Unless you’re dealing with government contracts, SBA loans, or specific licensing requirements, the exact NAICS code you choose usually doesn’t matter much for day-to-day LLC operations.
When NAICS Codes Actually Matter for Your LLC
Don’t let anyone tell you NAICS codes are just meaningless paperwork. They can have real consequences in specific situations:
LLC Formation Requirements
Some states require NAICS codes on your Articles of Organization:
- Alaska: Required field on LLC formation documents
- Arkansas: Must provide NAICS code for business activities
- Connecticut: Optional but requested on formation forms
- Georgia: Required for LLC registration
- Louisiana: Must specify business activity code
- Mississippi: Required on Articles of Organization
- New Hampshire: Optional field on LLC forms
- New Mexico: Required for LLC formation
Tax Implications and Reporting
- IRS Business Returns: Your NAICS code appears on business tax returns
- Industry Benchmarking: IRS uses codes to flag unusual expense patterns
- Audit Risk: Mismatched codes and activities might trigger additional scrutiny
- Self-Employment Tax: Some activities have different SE tax treatment
Government Contracting and SBA Programs
- Federal Contracts: NAICS codes determine contract eligibility and size standards
- Small Business Certifications: Size standards vary dramatically by NAICS code
- SBA Loans: Eligibility and terms can depend on your industry classification
- Set-Aside Programs: Minority, women-owned, and veteran programs use NAICS codes
Licensing and Regulatory Requirements
- Professional Licensing: Some NAICS codes trigger professional licensing requirements
- Industry Regulations: Certain codes subject you to specific federal or state oversight
- Reporting Requirements: Some industries have mandatory reporting based on NAICS codes
- Insurance Requirements: Workers’ comp rates and requirements vary by classification
My Experience: I had a client who chose a generic consulting code instead of the specific engineering code. When they applied for a government contract later, they were ineligible because their registered code didn’t match the contract requirements.
How to Choose the Right NAICS Code for Your LLC
Here’s my step-by-step process for selecting the best NAICS code:
Step 1: Identify Your Primary Business Activity
Key Question: What generates the majority of your revenue?
Examples:
- If you do both web design and marketing consulting, which brings in more money?
- If you sell products online and provide related services, which is your main focus?
- If you have multiple business lines, which one do you expect to be dominant?
Jake’s Primary Activity Rule: Choose the code that matches your biggest revenue source, not your favorite activity or future plans.
Step 2: Use the Official NAICS Search Tools
Primary Resource: NAICS.com search tool
Government Resource: Census Bureau NAICS lookup
Search Strategy:
- Start with broad keyword searches (like “consulting” or “retail”)
- Browse through the results to find close matches
- Read the detailed descriptions, not just the titles
- Check what’s specifically included and excluded in each category
Step 3: Be Specific When Possible
General Rule: Choose the most specific code that accurately describes your business
Why Specificity Matters:
- More accurate for statistical purposes
- Better alignment with industry regulations
- Clearer for licensing and contracting purposes
- Reduces confusion with government agencies
Example: Don’t choose “Professional Services” if “Management Consulting” is available and accurate.
Step 4: Consider Future Business Plans
Important Consideration: NAICS codes can be changed, but it’s easier to pick the right one initially
Forward-Looking Questions:
- Will your business model evolve significantly?
- Are you planning to add major new service lines?
- Do you expect revenue sources to shift dramatically?
- Are there regulatory advantages to specific codes?
Common NAICS Code Categories for LLCs
Based on my experience with hundreds of LLC formations, here are the most frequently used NAICS codes:
Professional Services
- 541511: Custom Computer Programming Services
- 541512: Computer Systems Design Services
- 541513: Computer Facilities Management Services
- 541611: Administrative Management and General Management Consulting Services
- 541618: Other Management Consulting Services
- 541990: All Other Professional, Scientific, and Technical Services
Real Estate and Investment
- 531110: Lessors of Residential Buildings and Dwellings
- 531120: Lessors of Nonresidential Buildings (except Miniwarehouses)
- 531390: Other Activities Related to Real Estate
- 525990: Other Financial Vehicles (for investment LLCs)
Retail and E-commerce
- 454110: Electronic Shopping and Mail-Order Houses
- 541810: Advertising Agencies
- 448110: Men’s Clothing Stores
- 448120: Women’s Clothing Stores
- 448190: Other Clothing Stores
Construction and Trades
- 236220: Commercial and Institutional Building Construction
- 238210: Electrical Contractors and Other Wiring Installation Contractors
- 238220: Plumbing, Heating, and Air-Conditioning Contractors
- 238990: All Other Specialty Trade Contractors
Food Service and Hospitality
- 722513: Limited-Service Restaurants
- 722511: Full-Service Restaurants
- 721110: Hotels (except Casino Hotels) and Motels
- 531110: Short-Term Lodging (for Airbnb-type businesses)
Jake’s Code Selection Tip: When in doubt between two codes, read the detailed descriptions and choose the one that specifically mentions activities closest to what you actually do.
NAICS Codes for Multi-Activity LLCs
Many LLCs engage in multiple business activities. Here’s how to handle this common situation:
Choose Your Primary Revenue Source
The Rule: Select the NAICS code that represents your largest source of revenue
Example: Your LLC does web design (60% of revenue) and sells printed merchandise (40% of revenue). Choose the web design code (541511 – Custom Computer Programming Services).
Consider Creating Separate LLCs
When It Makes Sense:
- Activities are in very different industries
- Different activities have different licensing requirements
- You want separate liability protection for different business lines
- Tax treatment varies significantly between activities
Use General Purpose Codes When Necessary
Last Resort Options:
- 541990: All Other Professional, Scientific, and Technical Services
- 561499: All Other Business Support Services
- 339999: All Other Miscellaneous Manufacturing
Jake’s Multi-Activity Approach: Don’t overthink this. Pick the code that matches your primary activity and move on. You can always change it later if your business focus shifts significantly.
State-Specific NAICS Code Requirements
Different states handle NAICS codes differently during LLC formation:
States That Require NAICS Codes
Must Provide: Alaska, Arkansas, Georgia, Louisiana, Mississippi, New Mexico
What Happens: Formation documents won’t be accepted without a valid code
My Advice: Have your code ready before starting the formation process
States That Request NAICS Codes
Optional Fields: Connecticut, New Hampshire, some others
What Happens: You can leave it blank, but providing one is better
My Advice: Include a code if you know it, skip if you’re unsure
States That Don’t Ask
Most States: Don’t require or request NAICS codes for LLC formation
What Happens: You’ll never encounter NAICS codes during formation
My Advice: You can still choose a code for tax and business purposes
Jake’s State Strategy: Even if your state doesn’t require a NAICS code for formation, you’ll likely need one eventually for taxes, loans, or contracts. Better to choose one early and be consistent.
Common NAICS Code Mistakes That Cause Problems
After seeing hundreds of NAICS code selections, here are the mistakes that actually create issues:
Mistake #1: Choosing Codes for Future Activities
The Error: Selecting codes based on what you plan to do rather than what you currently do
The Problem: Misalignment with actual business activities can trigger audits or compliance issues
The Solution: Choose codes based on current primary activities, change later if needed
Mistake #2: Being Too General
The Error: Choosing broad categories when specific ones are available
The Problem: May not qualify for industry-specific programs or contracts
The Solution: Use the most specific applicable code
Mistake #3: Ignoring Size Standards
The Error: Not researching SBA size standards for your chosen NAICS code
The Problem: May lose small business eligibility for contracts or programs
The Solution: Check size standards if you plan to pursue government contracts
Mistake #4: Inconsistent Usage
The Error: Using different NAICS codes on different documents or applications
The Problem: Creates confusion and potential compliance issues
The Solution: Document your chosen code and use it consistently
How to Change Your NAICS Code
NAICS codes aren’t permanent. Here’s how and when to change them:
When to Consider Changing
- Business Focus Shifts: Your primary revenue source changes significantly
- New Services: You add major new business lines that generate substantial revenue
- Regulatory Requirements: New activities require different licensing or compliance
- Strategic Advantages: Different codes offer better contracting or loan opportunities
How to Change
IRS: Update on your next business tax return
State: File amendment to Articles of Organization (if required by your state)
Other Agencies: Update with SBA, contracting agencies, or licensing boards as needed
Documentation
Keep Records: Document when and why you changed codes
Consistency: Use the new code consistently across all platforms and documents
Professional Advice: Consider consulting an accountant for tax implications
NAICS Codes and Tax Implications
While NAICS codes don’t directly affect your tax liability, they can influence how the IRS views your business:
Industry Benchmarking
- Expense Ratios: IRS compares your expenses to industry averages
- Profit Margins: Unusual profit margins for your industry might trigger scrutiny
- Deduction Patterns: Certain deductions are more common in specific industries
Self-Employment Tax Considerations
- Different Treatment: Some activities have different SE tax implications
- Professional Services: May be subject to additional SE tax rules
- Passive vs. Active: Real estate activities might qualify for different tax treatment
Business vs. Hobby Classification
- Profit Motive: NAICS codes can support business classification over hobby
- Industry Standards: Codes help establish legitimate business purpose
- Professional Activity: Some codes inherently suggest profit motive
Jake’s Tax Reality: Your NAICS code won’t change your tax liability, but it provides context for how the IRS interprets your business activities and deductions.
Special Considerations for Different Business Types
Different types of LLCs have unique NAICS code considerations:
Professional Service LLCs
Key Codes:
- 541611: Management Consulting
- 541618: Other Management Consulting
- 541990: All Other Professional, Scientific, and Technical Services
Considerations: May trigger professional licensing requirements
Real Estate Investment LLCs
Key Codes:
- 531110: Lessors of Residential Buildings
- 531390: Other Activities Related to Real Estate
- 525990: Other Financial Vehicles
Considerations: Different codes may affect passive vs. active income classification
E-commerce LLCs
Key Codes:
- 454110: Electronic Shopping and Mail-Order Houses
- 423990: Other Miscellaneous Durable Goods Merchant Wholesalers
- 541810: Advertising Agencies (for affiliate marketing)
Considerations: Consider sales tax nexus implications
Holding Company LLCs
Key Codes:
- 551112: Offices of Other Holding Companies
- 525990: Other Financial Vehicles
Considerations: May affect tax treatment and regulatory requirements
Tools and Resources for NAICS Code Research
Here are the best resources for finding and verifying NAICS codes:
Official Government Resources
Primary: NAICS.com – The official NAICS Association website
Secondary: Census Bureau NAICS – Government database
Help: Census Bureau at 1-888-756-2427 for assistance
Industry-Specific Resources
SBA: Small Business Administration size standards by NAICS code
Professional Associations: Many industry groups provide NAICS code guidance
Accounting Professionals: CPAs familiar with your industry can provide guidance
Private Tools and Databases
Business Databases: Hoovers, D&B, and similar services show competitor codes
Industry Reports: Market research reports often reference relevant NAICS codes
Software: Business planning software sometimes includes NAICS lookup tools
My NAICS Code Recommendations
After helping hundreds of entrepreneurs with NAICS codes, here’s my practical advice:
For New LLCs
- Choose based on current primary activity, not future plans
- Be specific when possible, but don’t obsess over perfect matches
- Use consistent codes across all documents and applications
- Document your choice and the reasoning behind it
For Existing LLCs
- Review periodically to ensure codes still match your primary activities
- Update when business focus changes significantly
- Consider strategic implications for contracts, loans, and programs
- Maintain consistency across all platforms and agencies
For Multi-Activity LLCs
- Focus on primary revenue source for code selection
- Consider separate LLCs if activities are very different
- Don’t overthink the perfect multi-purpose code
- Plan for future changes as business evolves
Ready to choose the right NAICS code for your LLC? I’ve created a comprehensive NAICS code selection tool with industry-specific guidance and strategic considerations. Access our NAICS code resource center for detailed code descriptions and selection strategies, or contact our team for personalized guidance on choosing codes that align with your business goals and compliance requirements.
Remember: NAICS codes are just one piece of your business formation puzzle. Choose thoughtfully, but don’t let perfect be the enemy of good. You can always change your code later as your business evolves.
Jake Lawson has helped over 1,200 entrepreneurs choose appropriate NAICS codes for their LLCs. His recommendations balance compliance requirements, strategic advantages, and practical business considerations.