Choosing the right NAICS code for your LLC from the North American Industry Classification System can be a way to secure government contracts, grants, and loans for your business. NAICS codes help ensure business compliance, determine insurance rates, and may even have tax benefits. Learn how to choose the right NAICS code to get the most benefits.
What Is a NAICS Code?
The North American Industry Classification System, or NAICS, is an industry classification system. NAICS (pronounced “nakes”) was designed by statistical agencies in the US, Canada, and Mexico, to help the government collect and analyze information on different industries.
A NAICS code is a six-digit, industry-specific code. NAICS replaces the earlier Standard Industrial Classification (SIC) system used before 1997.
You can select the NAICS that best fits your income-producing activities, company size, and type of industry. Using a NAICS code for your LLC allows you to properly classify your company, which in turn, can open a myriad of business benefits.
How Does a NAICS Code Work?
NAICS uses a layered, hierarchical structure. Each digit of the six-digit NAICS number has a meaning for classification and is organized as follows:
- Sector: 2-digit code
- Subsector: 3-digit code
- Industry Group: 4-digit code
- NAICS Industry: 5-digit code
- National Industry: 6-digit code
The resulting six-digit code represents a specific type of business. For example, the NAICS code 441222 represents boat dealers, with the following classifications:
- Sector: retail trade (44)
- Subsector: motor vehicle and parts dealer (441)
- Industry Group: other motor vehicle dealers (4412)
- NAICS Industry: motorcycle, boat, and other motor vehicle dealers (44122)
- National Industry: boat dealers (441222)
What’s the Difference Between NAICS and SIC Codes?
NAICS codes offer details about a business’s activities and greater industry classifications compared to SIC codes. SIC codes include 1,004 industries, while NAICS includes 1,170 industries. The NAICS recognizes 358 new industries, including 250 that provide services.
In addition, NAICS simplifies the organization of industries and makes it easier to classify your LLC. NAICS codes group businesses that use the same or similar processes to produce goods or services. In contrast, SIC codes group businesses based on demand or production.
What Is the Importance of a NAICS Code?
Getting a NAICS code for your LLC categorizes your business and qualifies you for many small business-related programs. NAICS codes are used by the Small Business Administration (SBA) to classify NAICS code size standards. Based on this, government agencies can determine whether or not your business is considered a small business, potentially opening new opportunities based on company size. Below are more reasons a NAICS code is important for your LLC.
Since the government primarily uses NAICS codes to classify businesses, registering your LLC with a NAICS code could make you eligible for federal contracts. Government contracts are available across various industries, including construction, engineering, and tech. These contracts can offer stable recurring revenue and new business opportunities for small businesses. This makes NAICS for startup LLCs a powerful tool for building business.
Tax Credits and Exemptions
The IRS also uses NAICS codes to determine tax return accuracy compared to other businesses in your industry. There are some eligible tax breaks based on the business’ NAICS code. When you get a NAICS code for LLC, you could potentially qualify for additional government-sponsored tax incentives.
Potential tax deductions include manufacturing, employee training and retention, farming, agriculture, sustainability, or research and development. You can check your state’s Department of Taxation and Finance website to find out current eligibility.
To understand LLC tax obligations, learn more about how LLCs are taxed, tax filing for an LLC, how to find your LLC tax rate, and how to file taxes for an LLC with no income. Also, find out whether you need an EIN for your LLC.
Grants and Incentive Programs
Government grants and loans can significantly boost small businesses. You’ll need a NAICS code for LLC to take advantage of state-sponsored grants.
For example, New York offers an Energy Cost Savings Program. If your LLC has a NAICS code, your business could be eligible to reduce energy costs by up to 45%. To take advantage of the Energy Cost Savings Program grant, you must submit an application with your business’s NAICS code.
A NAICS code can also improve the chances of loan approval, as banks typically use NAICS codes to determine small business loans. The right NAICS code for your business can help lenders gauge risks based on the other businesses in your industry. It can also prevent loan rejections due to inaccurate NAICS classification.
How to Get a NAICS Code?
There are eight states that require a NAICS code for the formation of an LLC, although you can file for a NAICS code when you form an LLC in any state. The states that require a NAICS code are:
- New Hampshire
- New Mexico
Getting a NAICS code for your LLC is relatively simple: they are self-assigned, so it’s up to you to select the correct industry. You can select the NAICS code from the official government website.
If you’re having trouble finding your NAICS code or doubt the industry classification, you can contact the US Census Bureau via email at NAICS@census.gov or by phone at (888) 756-2427.
How to Look Up for Your LLC NAICS Code?
Here are the steps to look up the NAICS code for your LLC:
- Check the reference list on the government site. There are many online resources to search by industry.
- Then, click on the sector that best fits your business on the government site.
- Next, click on the sub-sector that best fits your business.
- Choose the industry group and national industry that best describes your business to finalize your six-digit NAICS code for LLC.
What to Do if You Can’t Find a NAICS Code?
If you can’t find a NAICS code, you can speak to others in your industry to see which NAICS code they use or contact the US Census Bureau directly for help in selecting the correct NAICS code.
NAICS Coding System Advantages
Getting a NAICS code for your LLC can offer many business opportunities, from tax incentives to government grants. As a small business aiming to expand, it can open doors to secure contracts and long-term growth.
Along with NAICS codes, you may need support to manage LLC formation, compliance, bookkeeping, and other resources customized to run and grow your business. Doola bookkeeping services can help take the stress out of managing your business finances and find new opportunities to expand.
Are you given a NAICS code?
No, NAICS codes are self-selected based on the business and industry.
How do you add a NAICS code to your LLC?
You can update your NAICS code anytime by filing a NAICS code change. Requirements vary by state, but in many states, you can do this online for free.
Is there a fee or annual renewal cost?
There is no fee or cost of renewal for a NAICS code.
How do you revise or update your NAICS code?
You can update or revise your NAICS code with the state of your business residence. In addition, NAICS codes are reviewed every five years to ensure accuracy and relevance.
What should you list as your LLC’s purpose?
You should list the primary revenue-generating activity of the LLC as its purpose. You can also list a secondary LLC purpose if you have multiple income-generating activities.