How to Choose the Right NAICS Code for Your Small LLC

Choosing the right North American Industry Classification System (NAICS) code is an important step when you form or manage your LLC, especially if it’s a small one. This step is crucial because your choice can definitely affect taxes, approvals, and future business filings. Hence, it is necessary to fully understand how to choose the right NAICS code that best matches your business’s daily operations.

Key Takeaways

There is no single NAICS code that fits all LLCs.
The correct code depends on the main business activity.
Using official government tools helps prevent errors.
NAICS codes can be updated if the business changes.

What’s the NAICS Code?

Before we proceed with the steps to get a NAICS code, let’s understand what it is and how it works in managing and forming your Small LLC. A NAICS code is a two to six-digit number used by the United States government agencies to classify businesses based on their economic activity. This system is managed by the United States Census Bureau to identify how businesses should be organised for tax reporting, statistics, licensing, and compliance purposes. In simple terms, government agencies use this coding system to group businesses together that have similar activities.

How NAICS Works for Small LLCs

Each business is assigned a code based on its activity. The U.S. Census Bureau is the one that organizes NAICS codes into categories. These codes are classified from a broad category (general industry) to a more specific one. A business will fit first into a general industry, then into a more specific sub-industry, until it reaches the six-digit code that best describes its business activity.

If a business offers more than one service or product, the code will be decided based on where the activity that produces the most income belongs. For example, if your LLC sells products online and also offers consulting, you must consider which activity generates more income. If selling products online produces the most income, then your NAICS code should fall under its classification, which is retail or e-commerce.

Important

The NAICS coding system focuses on the activity that determines the primary source of income, because this indicates which type of category best represents your business.

How to Choose the Correct NAICS Code

Some small LLCs earn income from more than one source, such as selling products while also offering services. In this situation, you must choose the NAICS code that reflects your primary income source. Do not list multiple codes unless a specific form allows it. If your business activity changes later, the NAICS code can be updated on future filings.

The safest approach is to base your NAICS code selection on facts, not guesses. Below are a few practical steps to determine the correct NAICS code for your LLC:

1. Focus on Your Main Business Activity

Start with the activity that brings in most of your income. Side services, occasional work, or future plans should not determine the primary code. If your LLC does several things, choose the activity that best represents its daily operations.

2. Use the Official Search Tool

The U.S Census Bureau provides an official NAICS search tool where you can look up codes by keyword and review short descriptions. Using this source helps avoid guessing or copying another business’s classification. The official NAICS directory is https://www.census.gov/naics/

3. Read the Description Carefully

Some categories may sound similar but apply to very different types of work. Always read what is included and excluded in each code before making a final decision.

In selecting a NAICS code, you must avoid the following:

Choosing a broad category without checking specific details.
Copying another business’s classification.
Relying on third-party lists instead of government sources.

What Happens If You Choose the Wrong Code

Many entrepreneurs and business owners select a NAICS code that sounds close enough instead of one that clearly matches their main business activity. This usually happens when a business offers more than one service or sells products in different ways. Instead of considering the activity that produces the most income, they only choose a category they think fits best.

Once selected, a NAICS code is reused across tax forms, license applications, loan requests, and other filings. If the code does not match how the business actually operates, it can later lead to delays, follow-up questions, and clarification requests from government agencies.

Here are a few consequences of choosing the wrong NAICS code:

Your application may be delayed.
Possible issues with loan requests or grants.
Extra questions during filings.

But NAICS codes are not permanent. If you really made a mistake, you can usually update the code when you file again in the future. You may also file an appeal with the United States Small Business Administration (SBA) – Office of Hearings and Appeals (OHA).

Did You Know?

When you choose a NAICS code, you are simply telling the government what type of work your business does.

Final Notes

Keep in mind that accuracy matters more than speed. Choosing a NAICS code doesn’t have to be complicated. Focus on what your LLC actually does, confirm the description using official government sources, and move forward with confidence. Getting it right early can save time, avoid confusion, and reduce possible corrections later.

We hope this article helped you understand the importance of choosing the correct NAICS code and guided you in generating the right one. Feel free to leave a comment below. We appreciate feedback and messages from our readers and followers.