Updated November 24, 2020:

LLC tax questions refer to the different tax requirements and characteristics that come with the business entity structure of a Limited Liability Company (LLC) and the taxation status the company chooses. 

What Is a Single-Member LLC?

If an LLC has only one owner (called a member), then is it considered a single-member LLC. 

LLCs provide liability protection for their members because they are viewed separately from their owners. 

Single-member LLCs are pass-through business entities meaning that the profits and losses of the business pass through to the business members and are only taxed once on the personal income tax returns of the members. 

Corporations are taxed twice on their income, once as a business tax and again on the personal returns of the shareholders. The LLC structure avoids this double taxation

How a Single-Member LLC Obtains a Tax ID Number

Tax ID numbers, also known as employer ID numbers and federal tax ID numbers, are required for most LLCs. These are like social security numbers for businesses.

An LLC usually needs an EIN even if they don't have any employees. EINs are easily obtained by filing Form SS-4 with the IRS online or over the phone to get the number right away, or via mail to get it a little later. 

How a Single-Member LLC Completes Form W-9

If a business owner is an independent contractor registered as a single-member LLC, the IRS may require tax ID information via a W-9 form

Just like employees are required to fill out W-2 forms for their income taxes, single-member LLC owners need to fill out a W-9 and a 1099-MISC form

When the owner of a single-member LLC is filling out a W-9, they should use their social security number (SSN) rather than an EIN for the LLC.

The IRS views a single-member LLC as a disregarded entity, so a W-9 form is most appropriate for tax purposes.

How Excise and Employment Taxes are Reported by a Single-Member LLC

Single-member LLCs have to use an EIN to report their employment taxes because the LLC itself is responsible for these taxes, not the individual who owns the business. 

Employment taxes include the following:

  • Social security tax
  • Medicare tax
  • Federal income tax
  • Federal unemployment tax

Single-member LLCs must also use an EIN to pay any excise taxes

When Does a Single-Member LLC Not Need a Tax ID Number?

If a single-member LLC doesn't have any employees or any liability for excise taxes and is a disregarded entity, then it doesn't need an EIN. 

A taxpayer ID number (TIN) should be used by a single-member LLC owner for any federal taxes. 

Some states require EINs for all registered businesses including single-member LLCs. 

Banks usually require EINs to open business bank accounts.

What Type of Tax Return Is Used to Report LLC Profits?

If a business owner wants to avoid being audited by the IRS, they should be sure to fully understand all of the tax requirements for their LLC. 

LLCs are governed by state laws, not the IRS.

The IRS doesn't actually have a tax classification for LLCs, so the LLC needs to elect a specific taxation status. 

The following are possible classifications  for multi-member LLCs (any LLC with two or more members):

  • C Corporation 
  • S Corporation
  • Partnership

Possible classifications for single-member LLCs include the following:

  • C Corporation
  • S Corporation
  • Sole proprietorship (disregarded entity)

How Are Business Deductions Taken in an LLC?

Any tax deductions for an LLC are taken through the members of the company.

Members are each given a set amount of deductions allowed for the business expenses throughout the year. Because the LLC profits are reported on the personal income tax returns of the LLC members, the deductions are handled similarly and therefore offset any profits passed through.

Business deductions like office supplies or travel expenses will be reported on a Schedule C form for single-member LLCs.

Deductions for LLCs with partnership tax status must be reported on Form 1065, but the members still pay income taxes on any passed-through profits. 

How Is Sales Tax Handled in an LLC?

LLCs are usually required to collect a sales tax on any sold products or services. 

Members of the LLC have to make sure that any collected sales tax is distributed appropriately. Sales tax differs from state to state and can change, so LLC members will need to be sure they're always aware of current requirements.

If you need help with LLC tax questions, 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.