Single-Member LLC Tax Return – Exactly What to File and When

A limited liability company with only one member is called a single-member LLC. The Internal Revenue Service considers a single-member LLC as a disregarded entity that pays itself for doing business as an LLC. It may sound profitable as you can keep all the money you make from your business without sharing it with any partner. But what about the tax filing?

While the IRS has provided immense tax advantages to the LLC, the process is not always as straightforward as it sounds. You may get a few options to choose from. Here in this article, LLCBuddy editors came up with a clear single-member LLC tax return guide and answer to the question “what to file and when to file?”

Single-Member LLC Tax Return – What to File

As mentioned earlier, a single-member LLC can have a few options. In general, when you run a business on your own, the IRS treats you as an individual until you register your business as an LLC. In this case, the IRS opens up a few options for you. Before we discuss that, you can learn about how to pay yourself as a single-member LLC to understand your taxation better.

Disregarded Entity – Form 1040

When you form an LLC with one member, the Internal Revenue Service (IRS) treats you as a disregarded entity. That means your LLC will not pay any federal income tax or corporate tax as a business. All the profit, loss, credits, and deductions in the LLC will be reflected on the personal income tax return of the owner as an individual. You can basically enjoy pass-through taxation and protect your personal assets and liabilities.

As a disregarded entity, you file Form 1040 (federal income tax form) and show your profit, loss, credits, and deductions as an LLC owner.

Sole Proprietorship – Schedule C (Form 1040)

The next option you get is to elect your LLC as a sole proprietorship. A sole proprietorship is a form of business that does not require registration with the state. Unlike a single-member LLC, a sole proprietorship does not separate personal and professional assets. Hence, your personal assets are not protected from business damages if you have a sole proprietorship.

Both a single-member LLC and a sole proprietorship have only one person company. Besides, for both structures, the owner has to file the federal income tax to show the profit, loss, credit, and deductions of the LLC. However, for a sole proprietorship, the owner has to file Schedule C – Form 1040 and show their income and expenses, along with credits and deductions of the LLC.

Supplemental Income – Schedule E (Form 1040)

If you, as an LLC, have supplemental income or loss, as an owner, you will file this Schedule E – Form 1040 to show your income, loss, credits, and deductions of the LLC. Supplemental income and loss are considered from rental real estate, royalties, estates, trusts, and residual interests from real estate mortgages, etc.

Income from FARM business – Schedule F (Form 1040)

If you have an agricultural farm and earn revenue from it as a single-member LLC, you must file the Schedule F – Form 1040. Any forms of income or loss incurred from your agricultural farming should be reflected in this form. Besides, related expenses and credits should also be reported to the IRS by filing this form.

Alternative Tax Structures

Even with one member, a single-member LLC is considered to be a separate entity by the IRS. Besides the above-mentioned tax forms, there are other alternative tax forms a single-member can file. However, these are alternative tax forms. Remember, these alternatives are not default types of tax structures for a single-member LLC. You, as an owner, have to elect a specific tax structure to enjoy the benefit.

S Corporation – Form 2553

Many single-member LLCs elect an S Corporation as their tax structure. As a small business, you must file Form 2553 to have corporation benefits while enjoying a pass-through taxation. Single-member LLCs often elect an S Corporation to save tax burdens on self-employed taxes. Currently, as a single-member LLC, the owner has to pay 15.3% SE tax.

For example, let’s say your LLC makes $1,00,000. As an S Corporation owner, you will be an employee of your company, too. Suppose you pay yourself $40,000 as salary. As an S Corporation, the remaining amount will be divided as a dividend, and you will pay taxes based on your salary amount. In this way, you can easily get rid of self-employment taxes.

C Corporation – Form 8832

This is not quite common among single-member LLCs. Electing a C Corporation is not only a complex process, but it also has double taxation. Hence, it is not ideal for a single-member LLC to choose a C Corp structure. However, if any LLC plans to do so, the owner has to file Form 8832 with the IRS.

Single-Member LLC Tax Return – When to File

There is a general date provided by the IRS for filing taxes. Almost all individuals and businesses file taxes by April 15 every year.

LLCs that do not end their financial year on December 31 can file their taxes by June 15 every year. S Corporations and Partnership firms have a tax deadline till September 15 every year.

5 Top Questions You Ask as a Single-Member LLC on Tax Filing

There are a few confusions that almost all single-member LLCs have before filing their tax forms. We listed the top 5 questions and their answers for those who have just started their life as entrepreneurs.

1. Do I Need to Get an EIN for My Single-Member LLC?

Yes, if you hire employees in your LLC. Usually, a single-member LLC can file taxes with their Social Security Number (SSN) or Tax Identity Number (TIN). They don’t need to obtain an EIN to file their taxes. However, if a single-member LLC decides to hire employees, it has to obtain an EIN to file taxes. Read here how to file taxes without an EIN.

On the other hand, an EIN is required to open a business account. To separate personal and professional finances, you must get a business account (even as a single-member LLC). In that case, obtaining an EIN will be recommended. Read more about how to fix when your EIN is pending for a long time.

2. My LLC Didn’t Make Any Money. Do I Still Have to File Taxes?

Unfortunately, yes, you have to file taxes even when your LLC does not make any money. Filing and paying taxes is a part of business compliance that you have to be updated on. If you don’t file your taxes on time, your LLC will come under scrutiny, and you will be violating compliance rules, which may affect your LLC’s good standing.

Hence, it is wise to file your taxes on time to avoid any financial discrepancies in the future when your LLC starts making money. As a single-member LLC, you have to pay self-employment taxes, as mentioned above. This is a tax you may have to pay even when your LLC does not make any money. Check with the IRS for more details.

3. What Documents Do I Need to File My Taxes as a Single-Member LLC?

Before you file your taxes, you must gather a bunch of ‘key’ documents. The following documents need to be updated, as the details will be reflected on your tax return.

• Annual balance sheet
• Income details – profit and loss
• Expenses details – amounts spent on products and services used to run your business
• Previous year’s tax returns
• Business bank account statement
• Get the Form W-2 and Form 1099-NEC for employees and contractors (if any)

4. Can I File My Own Taxes or Should I Seek Professional Help?

Yes, you can file your own tax form. You need to choose the correct form for your LLC, download the form, fill it out with the required information, and submit it to the IRS. Calculate the payable tax amount and pay it through the right payment channel. For a single-member LLC, it is not that difficult to file taxes on your own. However, if you elect a C Corp or you turn your single-member LLC into a multi-member or more complex structure, you may need professional help to file your taxes.

5. I Started My LLC with My Spouse. How Will My Taxes be?

People often start their business together after they get married. The question is also valid, as now, you have a partner in your LLC. In this case, the usual structure should be a partnership. However, it is not as easy as it sounds. Surprisingly, not the company structure, but the state you are doing your business in, tells you what the tax structure of your LLC with your spouse.

There are 9 states, such as Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are considered to be Community States. According to the Community State Law, after marriage, if a husband and wife start their business, no matter who leads and who follows, there will be equal rights for each spouse in the company. Read more about starting an LLC with your spouse.

If you start your LLC in any of the above-mentioned community states, your LLC will be considered a single-member LLC and not a partnership. In this case, the tax structure will follow as mentioned above. On the other side, if your LLC with your spouse is located in any state other than community states, the IRS will treat your joint LLC as a partnership.

Common Mistakes a Single-member LLC Makes While Filing Taxes

• Wrong Selection of tax forms: Many people often select the wrong tax form. Usually, as an LLC, you not only want to be compliant with the IRS, but you also want to save tax. Beginners often, by mistake, choose the wrong tax form to file in such confusion.
• Miss deadlines: This is quite a serious issue. Many LLCs, which do not make money, skip filing taxes on time. They just do not realise that it is absolutely necessary to file taxes even when your business does not make any money.
• Miss Operating Agreement: As a single-member LLC, many people think an operating agreement is unnecessary. However, even if it is not mandatory, it is one of the most important internal documents every LLC should have.
• Avoid business insurance: As LLCs protect personal assets, having insurance is not worth it – this is a common mindset among novice entrepreneurs. But it is recommended to have business insurance to protect your LLC, no matter how big or small it is.
• Not enough knowledge of deductions: If you’re an artist and start an LLC from home, you may enjoy home-office deductions when filing taxes. However, many people are not aware of such deductions. It is important to check which expenses can be deducted from your gross income before you file your taxes.
• Keeping personal and professional finances separate: Even if it is a single-member LLC, running a business from home, without any employees, and being a one-man show, it is necessary to separate personal and professional bank accounts. It helps to keep personal and professional expenses separate at the time of tax filing.
• Doing everything by yourself: It is not that difficult to do things on your own; however, this does not always work out right. You may face issues as you are doing everything, from filing taxes to dealing with clients, and delivering output on time. It is not necessary, in fact, it is not recommended. Get help from experienced professionals to make things easier for your LLC.

In Conclusion

A single-member LLC, even if it is called a disregarded entity, is considered a separate business entity by the IRS. Hence, as an LLC owner, you have to go through all the compliance (state + federal) when it comes to filing taxes. Due to many tax advantages, a single-member LLC can comfortably choose an appropriate tax form and file it within the deadline to be compliant with the state and the IRS.

For beginners, it may sound confusing as they are new to this world. That’s when the LLCBuddy team comes into the picture. We share our knowledge and experience to ease the confusion you have while running your business all by yourself. However, if you still have doubts and you are not confident which tax form to choose from the above list, it is wise to consult a professional or an expert, like an attorney, before you move forward.