A Quick Rundown of Single-Member LLCs

Whether you're an entrepreneur, a freelancer looking to establish your own business, or a small business owner seeking to restructure, the single-member LLC business structure may be a fitting choice. But what is a single-member LLC exactly? Let's dive into everything you need to know about this business entity, how it works, and its benefits.

What is a Single-Member LLC?

A limited liability company (LLC) is a business structure registered in the state where your company conducts business. Owners of an LLC are called members, so a single-member LLC is composed of a sole member or just one owner. As an owner of a single-member LLC, you are not considered an employee. To pay yourself, you take money out of your business to fund your personal expenses.

Benefits of Forming a Single-Member LLC.

Here are some of the advantages of a single-member LLC:

Limited Liability Protection

When you form an LLC, you personally are legally considered a separate entity from your LLC. This means if your business runs into legal or financial trouble, your personal assets are protected. This is the most significant advantage a single-member LLC has over a sole proprietorship. If you stick with just being a sole proprietorship, both your personal and business assets are unprotected.

Taxation Flexibility

Single-member LLCs have the choice to be taxed as a sole proprietorship or corporation. Unless you elect to be classified as a corporation, the Internal Revenue Service (IRS) will treat your single-member LLC as a disregarded entity. This means you and your business are not separate entities for federal income tax purposes. As a result, you do not have to file a separate tax return for your LLC, and your business profits are reported on your personal tax return. Just like a sole proprietorship, you are only taxed on the individual tax rate, not the corporate tax rate as well.

Fewer Requirements

Compared to corporations, multi-member LLCs, and limited liability partnership structures, single-member LLCs are much easier to operate and maintain. Corporations are subject to corporate formalities such as electing directors and officers, organizing annual shareholder meetings and periodic director meetings, and keeping recorded minutes – a.k.a. meeting notes. Single-member LLCs do not have to worry about these requirements.

How to Form a Single-Member LLC?

The process of forming a single-member LLC differs from state to state, but generally, it is relatively simple. Once you file your articles of organization and operating agreement with your state’s secretary of state, you’re usually good to go. The easiest way to form your single-member LLC is to reach out to our friends over at 1-800Accountant.

How a Single-Member LLC is Taxed?

Since the IRS does not recognize an LLC as a taxing entity, a single-member LLC can be taxed as a sole proprietorship or corporation. If you choose to classify your LLC as a sole proprietorship, you will report your business’ income or loss on Schedule C and attach it to your Form 1040. If you’re choosing to be taxed as a corporation, you must first fill out Form 8832 to be elected as a corporation for tax purposes. After that, you are required to complete Form 1120 for C corporations or Form 1120S for S corporations.

Because the owner of a single-member LLC is not considered an employee, Social Security and Medicare contributions are not withheld from your paycheck. Therefore, you are required to report and pay self-employment taxes via Schedule SE.

Work with the Experts

Forming a single-member LLC presents an attractive business structure for entrepreneurs, freelancers, and small business owners. This offers numerous benefits such as limited liability protection, taxation flexibility, and fewer administrative requirements. However, navigating the complexity of entity formation and taxation can be daunting without expert guidance. Partnering with 1-800Accountant simplifies this process, eliminating potential roadblocks and ensuring you reap the full benefits of your business structure.

Our dedicated team of accountants, CPAs, and enrolled agents are well-versed in the nuances of single-member LLCs. We deliver personalized tax advisory, bookkeeping, payroll, and audit defense. The blend of advanced technology and human expertise offers an unmatched service to help grow your bottom line while keeping your finances in order. Utilize 1-800Accountant's entity formation services to help navigate the complexities of single-member LLCs so you can focus on what matters most - growing your business.