Single Member LLC Tax: Everything You Need to Know
Single member LLC tax requirements are similar to multiple-member LLCs. They carry a lot of flexibility, as compared with corporate taxation.3 min read
2. The SMLLC Owner
3. Single Member LLC Pros: Compliance Requirements
4. Single Member LLC Pros: Taxes and Other Expenses
5. Single Member LLC Pros: Liability Issues
Single member LLC tax requirements are similar to the tax requirements for multiple-member LLCs. They carry a lot of flexibility, as compared with corporate taxation.
What a Single Member Limited Liability Company LLC Is
Single member limited liability companies are a form of LLC that only has one member. Single member LLCs should be registered in the state where the company primarily conducts its business. The designation as a single-member LLC is intended to recognize that a company has only one owner. Owners of an LLC are always referred to as "members". Single member LLCs have the same pros and cons as any other LLC.
Many single member LLC owners choose to form an LLC, rather than operate as a sole proprietorship, in order to improve their legitimacy and to give themselves the protection of limited liability that an LLC offers. Companies owned by a single person cannot register as a traditional LLC. Instead, they must register as a single member LLC. Luckily, single member limited liability companies have lower maintenance requirements than traditional LLCs. They still include limited liability protections.
The SMLLC Owner
LLC members differ from corporation owners in that they:
- Can take money out of the business as needed. They are not salaried employees.
- Can freely put money into the business from personal funds.
Single Member LLC Pros: Compliance Requirements
Limited liability companies are beneficial for their lower regulations. Those wishing to form a single member LLC need to create articles of incorporation and file them with the relevant secretary of state's office. A small fee will be required to do this.
After that, there are few compliance rules to follow. This is much different than with an S corporation, where you would need to comply with corporate regulations and formalities. For instance, an S corporation needs to have officers and directors, among other key decision makers. Corporations must have annual shareholder meetings and conduct reelections for officers. A single member LLC is not beholden to these requirements.
Sign any legal documents on behalf of your LLC. You can make this relationship clear by putting the words "on behalf of (Your LLC Name)" after your full name when you sign.
Single Member LLC Pros: Taxes and Other Expenses
Single member LLCs are more affordable than multiple-member LLCs. Single member LLCs can choose to be taxed as corporations, just like multiple-member LLCs.
If this option is not formally elected by submitting a form to the IRS, the single member LLC is classed as a disregarded entity. When that happens, you are not required to file a tax return for your LLC. You simply report the business' profits as self-employment income on Schedule C of your personal tax return. In this way, you can save money on tax preparation.
There are also no minimum tax fees for a single-member LLC. Minimum fees can be up to $800 for LLCs in states like California. Registering your LLC as a single member LLC can save you hundreds of dollars on these fees alone.
Single Member LLC Pros: Liability Issues
Single member LLCs do not offer as much limited liability protection as a traditional limited liability company. In theory, a business owner should be protected from business debts by the formation of the single member LLC. However, in practice, this protection can be overturned by a court ruling.
The purpose of an LLC is to keep a business and its owner as two entities, separate from each other.But the treatment of single member LLCs as disregarded entities means that the owner may mix business and personal affairs. A court can, in that case, disregard the corporate veil.
Multiple member LLCs may have special protections in state law. There are 18 states that do not allow plaintiffs to seize a multiple-member LLC's property in order to rectify personal debts or legal obligations. The same protection is afforded to single member LLCs in only 3 states. In order for an owner of a single-member LLC to maintain limited liability, it is advised that the owner create an operating agreement that describes how the business will be run, and then follow it carefully during business operation.
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