Single-Member LLC Tax Filing: Everything You Need to Know
Single-member LLC tax filing requirements must be followed in order to remain in good standing.3 min read
2. Advantages of a Single-Member LLC
3. How to Save on Taxes for Single-Member LLCs
4. Hidden Deductions for Your Single-Member LLC
5. How Does a Single-Member LLC Get a Tax ID Number?
Single-member LLC tax filing requirements must be followed in order to remain in good standing. Once you form an LLC, or limited liability company, it is imperative that you understand what is expected of you in terms of taxation. It is also important that you be aware of your expenses, since these deductions can help you save a significant amount of money when you file.
What Is a Single-Member LLC?
Although creating a sole proprietorship is a cheap and easy option, this structure does not provide limited liability protection. This is why many opt for LLC formation. If you are the only owner, you cannot form a traditional LLC. Instead, you will form an SMLLC, or a single-member LLC.
This step allows an owner and their business to become separate entities. However, an LLC will remain as a pass-through entity. This means that all profits are reported on the owner's personal tax return.
Advantages of a Single-Member LLC
There are some significant advantages to forming a single-member LLC::
- Compliance requirements are minimal. To set up an LLC, you will need to file articles of incorporation. In comparison to a corporation, there are few requirements.
- In terms of taxation, you have options. If you do not take further action, you will be taxed as a sole proprietorship. You also have the option of S corporation election. You will also save on operating fees.
- By adding "LLC" to your company name, your customers and partners will take you more seriously.
How to Save on Taxes for Single-Member LLCs
Far too often, companies cut into their profits due to certain IRS rules. This is most commonly seen among sole proprietorships and single-member LLCs. Since these owners typically work from home, they can often net major tax savings based on deductions.
While operating a single-member LLC, you will need to complete IRS Schedule C and attach it to your Form 1040. This is where you will report all of your income and expenses. In terms of your income, you must report all of your company's profits, even if these values are higher than what you drew as compensation.
To maximize your savings, be sure to maintain good records from the beginning of the year. This will make it easier for you to complete an accurate Schedule C year after year.
Hidden Deductions for Your Single-Member LLC
To make this process more accurate and reliable, it is important that you open a separate bank account for your single-member LLC. This will provide you with a strong record of your business income and expenses for tax purposes. As far as expenses are concerned, some of the more obvious deductions include:
- Promotional and marketing material
- Mandatory equipment
- Postage and shipping costs
- Food costs at showings, as well as fees to participate
- Return or exchange of merchandise
However, if you are not mindful of hidden deductions, you could miss out on real savings. For example, have you considered what it costs you to run a home business? The IRS allows a $1,500 home office deduction. You can also claim your mileage costs, phone bills, or even subscription costs that are applicable to your business (i.e., ordering a fashion magazine while operating as a clothing brand).
How Does a Single-Member LLC Get a Tax ID Number?
Once you form your business, you will need an employer ID number. This number is essentially your company's social security number so that it can be easily identified. To apply, you will need to file IRS Form SS-4. This process can be completed easily online or on the phone. You will then receive your EIN immediately. This number will be required to report employment taxes for your LLC.
The moment you form your LLC is the moment that you should begin tracking all of your business finances. Keep copies of all your receipts and statements. This will make filing your taxes easier and more accurate. This will also help you maximize your savings by applying all of your company's deductions, and in the worst-case scenario of an audit, all claims can be referenced with ease.
If you need help meeting your single-member LLC tax filing requirements, 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.