Taxes for Single Member LLCs

The IRS treats single member LLCs as disregarded entities for tax reasons. Is this the right choice for your business? Read on to find out the basics of disregarded entities.


What is a Single Member LLC?

A single member LLC is a business with only one owner that is not taxed separately from their business. Like sole proprietorships, a single member LLC is taxed as a disregarded entity by default.

Because the government ignores disregarded entities, they undergo "pass-through taxation." This means all profits or losses from the business pass through the business directly to you, the business owner. You in turn are responsible for paying income taxes on your earnings via your personal tax return.

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Unlike other business structures, LLCs can choose among three different ways of paying income tax. One popular option is to be taxed as an S-Corporation, also known as an S-Corp. Technically an S-Corp is just a tax designation, not its own type of business entity. Learn more.

Federal Taxes

To file your income taxes as the owner of a disregarded entity, you must file the following documents:

  • Income 1040: Individual Income Tax Form. All taxpayers must file this form.
    • Schedule C: This is the form where you report income specifically from your business.
    • Schedule E: A form to report income from rental properties and other investments.
    • Schedule SE: This form is for filing and paying your self-employment taxes. The owner of a disregarded entity must pay Medicare and Social Security taxes.

State Taxes

State taxes are pass-through taxes. The only difference between paying federal and state income taxes will be the forms you need to file.

Some states require LLCs to pay a special business tax. This tax is usually called a franchise tax, but can also be a "Business Excise Tax" or a "Privilege Tax.". This tax can either act as a yearly fee with a flat amount, or it can be a percentage of the business like any other tax.

If you are selling a product or service, you will most likely have to pay sales tax. See our sales tax guide so you can learn everything you need to know about collecting sales and use tax.

For a complete list of business taxes by state, check out our guide.

Employee Taxes

If you hire employees for your business, you will have to register for your State's employer taxes. These taxes can include things like paying for workers’ compensation and withholding income taxes on behalf of your employees.

Bookkeeping and Accounting

Benefits of Good Accounting

By making sure every possible deduction is monitored and recorded, good accounting can provide some considerable advantages:

  • Cuts your tax bill by thousands every year.
  • Prevents trouble with the IRS and state governments.
  • Provides insight into where your money is going and how to spend it.
  • Saves time and frustration

For more on the importance of small business bookkeeping and accounting, as well as some fixes, visit our guide.

Recommended: Take the hassle out of your bookkeeping, accounting, and tax filing. Two reliable services which do all of this for you at a fixed monthly price:

Frequently Asked Questions

1. What State Should I Form My LLC In?

If your business works out of a local physical store or only hires local employees, it is best to form your LLC within that state.

Businesses tend to look for states that have no income tax or other forms of tax breaks, but keep in mind that these states can also come with Annual Report fees and can require LLCs to report income based on where profits are earned, not where the business is formed.

If your business does not need to be focused in any one state, there are three popular states in which companies like to form:

  • Delaware: This state offers low filing fees and does not tax out-of-state income.
  • Nevada: A good choice for businesses that want to avoid taxes on business income and capital gains. Additionally, Nevada does not require meetings or operating agreements.
  • Wyoming: Wyoming has multiple tax benefits, including a lack of business and franchise taxes. There is also an added privacy bonuses, as officers can elect to remain anonymous and owners can appoint a “proxy” to vote on their behalf.

2. What if an LLC is owned by a married couple?

Spouses that wish to become owners of an LLC together can choose to become a Qualified Joint Venture. With this title, both spouses are considered one whole owner (e.g. “Mr. Smith” and “Mrs. Smith” become “Mr. & Mrs. Smith”). In other words, they are treated as a single-member LLC.

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