Single Member LLC EIN: Everything You Need to Know
A single-member LLC EIN is a critical part of forming a new business. You need to get an EIN (Employer ID Number) even if you don't plan to hire any employees.3 min read
2. Obtaining an EIN
3. Choosing Your IRS Entity Classification
A single-member LLC EIN is an important part of setting up a new business. EIN is an abbreviation for Employer ID Number, but you need to get one even if you don't plan to hire any employees. It is also known as a Tax ID Number, and you will use it whenever you file your LLC's tax returns as well as for many other purposes.
A single-member LLC is a bit different from other LLCs, but it is necessary to set up everything properly to be assured of the liability protection and tax advantages of an LLC instead of a sole proprietorship. LLCs are traditionally treated the same as partnerships but with liability protection added. The LLC serves to separate the business from the owner or owners and becomes a pass-through entity, so all profits and losses are reported on the owners' income tax returns.
Why Set Up a Single-Member LLC?
There are several advantages to LLCs for single members, but they can also be tricky and result in problems if every rule is not followed. The main advantage is liability protection, which means that in the event of a lawsuit or debt against the business, the owner's personal assets may not be seized in order to pay them.
If your LLC had multiple members, it would serve to protect each member from the actions of the other members. If creditors were allowed to seize the member's interests in the LLC, that would mean the other members must accept a new member, which would be the person or entity that was owed money. Federal law prohibits this from happening. Instead, the creditor can only demand the member's percentage of profits.
For this reason, it is best to avoid operating as a single-member LLC. It's recommended that LLC owners do work with a partner, even if that partner owns a negligible percentage of the business. You should not choose your spouse as that partner, because the IRS considers married LLC members as one member. A child or a different relative can serve this purpose without any problems.
If you take on a partner, that partner does not need to manage the LLC or have any input in the business operations at all. If you set up the LLC to be manager-managed, and appoint yourself as the manager, your partner will remain silent and will have no say in the way the business is run. You may not want to give away even a small percentage of your company, but it will protect you in the long run.
Obtaining an EIN
Every LLC needs an EIN, even if the owners never plan to hire employees. An EIN is simply a number that works like a social security number; it has nine digits and is assigned by the IRS. You need to put it on your tax return and other forms just as you would use your social security number. Even though an LLC does not pay taxes itself, it will still need to file an informational tax return.
Getting an EIN is a simple process. You must file Form SS-4. This may be done quickly online or over the phone. You will then receive your EIN immediately.
You need an EIN for the following reasons:
- Filing federal taxes.
- Filing state taxes.
- Opening a business bank account in the LLC's name.
- Processing payments to other companies you do business with.
Choosing Your IRS Entity Classification
LLCs are allowed to choose their tax classification. If they have two or more owners, the IRS can insider them a partnership or a corporation. Single-member LLCs can choose between classification as a corporation or a disregarded entity — a sole proprietorship, as far as the IRS is concerned. The IRS will not consider your company as an LLC unless you have a partner.
Single-member LLCs can choose to be treated as corporations for filing federal income tax. They need to file IRS Form 8832 if they choose to be treated as a C corporation. They can also file IRS Form 2553 if they choose to be treated as an S corporation. If these forms are not filed, and the single-member LLC does not elect to be treated as a corporation, the IRS will consider it to be a sole proprietorship.
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