EIN for Single Member LLC: Everything You Need to Know
There are requirements regarding EIN for Single Member LLCs. Single Member LLCs usually can file under the owner's SSN but there are some circumstances in which requires the business to have its own identification.3 min read
2. What Is a Single-Member LLC?
3. Things to Do for a Single-Member LLC Owner
4. Taxation Election
5. What Is an EIN?
6. Other Reasons for Obtaining EIN
Updated November 4, 2020:
There are requirements regarding EIN for Single Member LLCs. Single Member LLCs usually can file under the owner's SSN but there are some circumstances in which requires the business to have its own identification.
What Is a Limited-Liability Company (LLC)?
An LLC is a business structure that offers business owners limited protection by separating the owner from the business. Setting up a limited liability company allows an owner to avoid double taxation since they're only taxed at the owner level. An LLC offers some liability protection that a conventional partnership does not offer. If you have an LLC partnership but do not want your partner to have a say in the day-to-day business affairs, then you must:
- Set your LLC as a manager-managed entity. This means only the designated manager has the authority to dictate how this business is run.
- List yourself as the member (or agent) designated to manage the company.
What Is a Single-Member LLC?
If you are the only member of an LLC, the IRS will treat you as a sole proprietor. Single-member LLCs are taxed as a sole-proprietorship because the IRS recognizes this structure as a "disregarded entity." LLCs were created to offer owner-protection in a partnership. Given this entity type was created for partnerships, you must have a partner in order to form an LLC. Business owners under LLCs are known as Members. While single-member LLCs are "disregarded entities," there are circumstances when the owner needs an EIN.
If you do not want to risk the IRS characterizing your business as a single entity LLC, then get a partner. Consider giving a small percentage of your business to a family member or close friend. The IRS, and in the majority of the circumstances, the courts consider a business a single-member entity if your only partner is your spouse.
You are not required to have an EIN if you are the owner-operator of a home-based business. This means you manage the business and you also provide the services (a solopreneur). Just designate your business as a sole proprietorship and the IRS will allow you to use your social security number instead of applying for an EIN.
Things to Do for a Single-Member LLC Owner
If you want the IRS to recognize your LLC as a corporate entity for tax purposes:
- Download the IRS Form 8832 (Entity Classification Election).
- When filling out the form, be sure to opt for corporate tax treatment.
If you are considered a "disregarded entity" then add your LLCs EIN number to your Schedule C on your tax return. As a single-member LLC, remember you are a business and should keep accurate and detailed records just like a corporation would have to.
- meeting notes.
- action items and their resolution dates.
- critical decisions.
- updated member roster with votes and roles.
It is critical to separate your business transactions from your personal transactions. Mixing your business funds with your personal funds can have some serious implications. Your business is a separate entity from you, the member.
LLCs have flexibility in how they are taxed because they are not officially recognized by the IRS. For tax purposes, single-member LLCs can choose to be recognized as corporations, partnerships, or sole proprietorships. All LLCs, including single-member ones, need an EIN if they are listed as a corporation or if they have employees. If you sell your LLC, the new owners cannot use your EIN, they must request their own EIN from the IRS.
What Is an EIN?
The IRS assigns a nine-digit unique identifier called an employer identification number (EIN) to your business. An Employer Identification Number is to a business what a social security number is to a person. If your business is required to file tax returns, you must use its EIN. Your EIN is the manner in which the IRS tracks your business' tax records.
Other Reasons for Obtaining EIN
For tax purposes, the IRS treats a corporation and its owner as two different entities. The IRS keeps track of a corporations activities and its tax returns by its EIN. It does not matter whether you use your SSN or EIN you receive 1099-Misc income.
If you need help with getting an EIN for a single-member LLC, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.