Single Member LLC Filing Tips
Single member LLC filing is a simple term for a less than simple tax obligation, accounting, and filing processi. The LLC, Limited Liability Company, is a business entity created by state statute. How the IRS treats the LLC is dependent upon:
- Elections made by the LLC
- The number of members
The IRS will treat the LLC either as a partnership, corporation, or as part of the owner’s tax return (a “disregarded entity”). With at least two members, the IRS will treat the entity as a partnership for federal income tax purposes unless the entity files Form 8832 and elects to be treated as a corporation.
Owner and Single Member LLC Filing
When the owner of a single-member LLC does not elect to be treated as a corporation, the LLC is considered a “disregarded entity” by the IRS. In this case the activities of the LLC will be reflected on the owner’s personal federal tax return. Generally, the individual owner of this entity will reflect the business activities on:
- Form 1040 or 1040-SR Schedule C, Profit or Loss from Business (Sole Proprietorship)
- Form 1040 or 1040-SR Schedule E, Supplemental Income or Loss
- Form 1040 or 1040-SR Schedule F, Profit or Loss from Farming
Just as if they own a sole proprietorship, the single member LLC owner is taxed on the net profits from self-employment.
Taxpayer Identification Number for Single Member LLC Filing
If the IRS has classified the business as a “disregarded entity,” the owner must use their social security number (SSN) or their employer identification number (EIN) for all forms, reporting, and payment of self-employment taxes. The LLC will need an EIN if the business has employees or if the business is subject to excise taxes.
Single Member LLC Filing for Employment or Excise Taxes
The single member LLC filing as a disregarded entity for income tax purposes will report on the individual’s personal return. However, for excise or employment taxes the entity will be treated separately from the individual. This separate entity will be reporting activities with its EIN for employment taxes and reporting on various forms any excise tax required.
Single Member LLC Filing if Spouses Hold Joint Ownership and Community Property
When the business entity is owned jointly by spouses in a community property state, the IRS can treat the business entity in either of two ways:
- The IRS will accept the entity as a disregarded entity if the joint owner spouses declare that way. The entity’s income tax activities will be reported on their joint tax return.
- If the spouses choose to report the business activities as a properly formed partnership, the IRS will treat it as a partnership.
A business is a qualified entity if:
- It is wholly owned by a husband and wife as community property under the laws of a state or other legal entity that recognizes community property.
- No other person or entity is considered an owner for federal tax purposes.
- The business is not treated as a corporation.
Should there be a change in how the business reports, the IRS will treat it as a conversion of the entity.
Single member LLC filing is not simple but is usually an excellent business entity decision for liability and financial reasons.