EIN single-member LLC is a business structure registered as a limited liability company with a single owner.

What Is a Single-Member LLC?

A single-member LLC is a popular form of small business in the U.S. It has only one owner — aka member. It is registered with the state where it conducts its business.

A single-member LLC enjoys all the benefits of a limited liability company. It has its share of disadvantages as well, stemming out of its existence as a limited liability company. For the purpose of federal income tax, it is treated as a pass-through entity, where profits and losses of the company are included in the individual tax returns of the owners.

Single-Member LLC Owner Versus Owner of a Corporation

There are two major differences between the owner of an LLC and the owner of a corporation:

  • The owner of an LLC can't be an employee of his company. He doesn't work for a salary. Instead, he withdraws money from the business for his personal expenses.
  • The owner of an LLC brings in his personal money by means of capital contribution to the business as, and when, required.

Single-Member LLC Versus Sole Proprietorship: Advantages

A single-member LLC has certain advantages over a sole proprietorship.

A single-member LLC is a distinct legal entity, different from its owner. The law recognizes it as a legitimate business entity; it must include the acronym LLC in its business name.

You must register a single-member LLC with the state. The formation process includes registering its business name so that any other business in your state can't use that name. A sole proprietorship concern can also register its business name through a different process.

The regulatory requirements for operating an LLC are minimal. You do not need to file annual reports or keep any minutes.

Forming a Single-Member LLC

  • Visit the business division of your state to get information on the formation process.
  • File Articles or Certificate of Organization, as required by your state, and pay the required filing fees.
  • Prepare an operating agreement to outline the internal rules and procedures for your company. It is a document similar to corporate bylaws.

When a Single-Member LLC Is Not Differentiated From Its Owner

A single-member LLC is not considered as a separate entity from its owner for the purpose of income tax. The owner needs to include Schedule C while filing his personal tax return. However, it is considered as a separate business entity for the purpose of employment taxes and some excise taxes.

This saves you time and money in preparing and filing of your income tax return, since you need not file a separate return for your LLC. You can use your SSN or EIN for receiving the non-employee compensation from your LLC. You must report your 1099-MISC income under Schedule C in your income tax return.

Single-Member LLC's Tax Treatment

A single-member LLC is subject to various federal and state government taxes. Although the taxes are similar to those applicable to other business entities, the payment method is different in case of a single-member LLC.

Federal Income Tax

  • Since the IRS does not categorize LLC as a separate taxing entity, a single-member LLC is taxed as a sole proprietorship concern.
  • The owner combines the net business income of the LLC with his other income while filing his personal tax return.

Self-Employment Tax

  • Just like a sole proprietor, the owner of a single-member LLC is treated as a self-employed person rather than an employee of the company.
  • As such, the SMLLC owner must pay self-employment taxes on the income he receives from his company.

Tax ID Numbers for a Single-Member LLC

  • Almost all businesses need to have an Employer ID number (EIN).
  • An EIN is a unique nine-digit number just like a Social Security number (SSN).
  • Business entities quote their EIN in the tax returns in the same manner as individuals use their SSN.
  • A single-member LLC must obtain an EIN whether or not it has any employees.
  • The EIN helps the IRS keep track of the tax returns filed by business entities.
  • Most of the banks will ask you for the EIN when you approach them for opening a bank account for your LLC.
  • Since a single-member LLC is not considered as a separate entity for the purpose of income tax, you must use your personal tax ID (and not the EIN of the company) while filling out Form W-9.
  • You can apply for an EIN in Form SS-4. This can be done online or even over the phone.

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