Single Member LLC

Single Member LLC

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Single Member LLC


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There are two types of LLCs that can be formed. A single member LLC or a multi-member LLC. We’re going to turn our focus to the single member LLC and break down all of the details to give you a basic understanding of how a single member LLC functions.

What is an LLC?


Checklist

An LLC is a limited liability company. This United States business structure provides the owner or member with liability protection on a personal level. This means that judgments or filings against the LLC would not be able to affect the personal resources of the members, unless perhaps fraud or criminal activity is exposed.

An LLC is ultimately a hybrid business structure that combines characteristics from both the corporation structure and the partnership or sole proprietorship structure. It pulls some of the benefits from both sides and offers an advantage that neither side can offer in the mix.

What is a Single Member LLC?


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A single member LLC is one type of LLC, you might also see it referred to as an SMLLC. What this means is that the company has only one member. In most cases, a single member LLC is disregarded for federal income tax purposes, unless they designate or elect otherwise.

What does that even mean? Well, for the most part, single member LLCs pass through all of the expenses and income from the business and file that data on a Schedule C with their individual 1040 Form. The single member could also potentially be a corporation or business. In those cases, they would aggregate SMLLC income and expenses with that of the business entity on the business’s tax forms.

SMLLCs are fairly new. They were not originally allowed in the LLC statutes. At this time, all states allow the operation of SMLLC and have adapted their statutes as such as well.

SMLLC Benefits


Frequent Questions

There are several benefits to using an SMLLC. If you are considering operating under a sole proprietorship, you may want to take a look at these benefits. The good news is that you can still be the only member. You are not required to bring anyone else in.

  • There could be tax savings since the business income is not reported as an individual’s earned income but rather attached as self-employed income.
  • The SMLLC separates owner and business, meaning tax and liabilities of the business are now also separate from the owner.
  • LLC gives a business some sense of professionalism and even will appear more legitimate to the eyes of many.
  • The owner of the business can appreciate some semblance of privacy about the business, particularly if it was filed anonymously.
  • No other business can use the same name in the realm of registered businesses

How to Form a Single Member LLC


Checklist

A single member LLC does require some specific functions in order to register as an LLC. The guidelines are similar to that of a traditional LLC, with the only difference being that there is one member involved rather than multiple members.

There are 5 steps to work through. Here is a brief overview.

  1. Choose the state in which to form the SMLLC
  2. Choose a unique name for the LLC and check the state’s database to ensure it is unique
  3. Select a registered agent – a party to accept legal mail on behalf of the LLC
  4. Create an operating plan or agreement. Not all states require this but it is recommended as a positive step in the right direction
  5. Files official articles of organization or formation.
    • The articles will need to have the address of the member, a physical and mailing address for the business, a signature of the member, and a signature from the registered agent.

In the process of forming an SMLLC, you will most likely need to apply for an EIN to separate the tax identification number from your personal SSN.

Overall, an SMLLC is formed using the same process that is used for an LLC. Whether or not the agreement and details point out a single member could vary by state. The operating agreement for an SMLLC will probably be simple in comparison to a traditional LLC.

How is a Single Member LLC Taxed?


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In most cases, the IRS defaults a single member LLC to a disregarded entity. This means that the member will file a Schedule C for the business profits with their individual tax return when it is prepared.

It is possible for a single member LLC to request to be treated as a C or S-corporation by the IRS. This requires some additional filing and paperwork to qualify with the IRS but it is mostly a matter of making an election or designation of this specification.

A single member LLC cannot be taxed as a partnership because there is only one member involved and a partnership would require more than one member in order to qualify for the business or tax structure.

What Taxes Do Single Member LLCs Have to Pay?


A single member LLC will be required to pay self-employment tax, state income tax if any applies, and federal income tax. Since an SMLLC is a single member, it is considered self-employment for the purposes of operations and taxation.

Employer Identification Numbers


You’ve seen us use the term EIN. So what is an EIN exactly? You are probably familiar with an SSN, which is an individual social security number. This is the unique identifier for an individual that is used for tax and identification purposes.

An EIN is much the same. EIN stands for employer identification number, which is used much like a TIN or SSN for the IRS to be able to individually identify your business. Applying for an EIN through the IRS is free and it’s a simple process that you can also complete online.

Why Does a Single Member LLC Need an EIN?


A single member LLC will need an EIN because it is not eligible to be operated under your individual SSN. Remember that an SMLLC is a separate entity from the business owner. This means that it requires its own unique identifier, which is completed by obtaining an EIN.

How Do You Get an EIN as a Single Member LLC?


The IRS provides us with an instructional that provides details on how to apply for an EIN . You can apply directly on the IRS website or you can apply using another option. They offer application processing via fax, mail, and telephone as well.

The application process is fairly simple to complete in order to obtain an EIN.

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