A Single-Member LLC, abbreviated SMLLC, is an LLC with just 1 owner. An LLC owner is referred to as a Member, hence the name “single member” LLC. The purpose of forming an LLC is to protect the personal liability of the owners. Forming an LLC separates your personal assets from that of the business.
All 50 states allow for Single-Member LLCs and this is the most popular type of LLCs formed in the United States.
A Single-Member LLC can be owned by an individual person, or it can be owned by an existing company, such as another LLC, a Corporation, or any other legal entity.
A Single-Member LLC can also be owned by a non-US citizen or non-US resident. There are no residency or citizenship requirements for the ownership of LLCs, whether the LLC’s are Single-Member LLC or Multi-Member LLCs.
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Taxes & Single-Member LLCs
By default, a Single-Member LLC is treated as a “disregarded entity” by the IRS for federal tax purposes.
This means you will pay taxes the same way as a Sole Proprietorship does. The LLC will report its income or losses on a schedule C, which will become a part of your personal 1040 income tax return. If your income is earned by other means, you may also have to attach additional schedules to your personal income return.
Please keep in mind we said “pays taxes the same way as“. A lot of people get confused by this and think that their LLC is a Sole Proprietorship. At the state level, your LLC is simply an LLC; a legal entity formed by state statute. However, the IRS does not have a tax classification for LLCs, so the IRS just taxes the LLC according to the number of Members the LLC has.
Sole Proprietorship taxation is the default tax classification for LLCs with 1 owner. Alternatively, if you’d like your Single-Member LLC to be taxed as an S-Corp, you can do so via IRS Form 2553, or if you’d like your Single-Member LLC to be taxed as a C-Corp, you can do so via IRS Form 8832. If you are thinking about electing either form or “corporate taxation” for your LLC, we strongly advise you speak with multiple accounts in your state. Just ring a few up back to back to get a few different opinions. Often times, these types of taxation are not as simple as some articles lead you to believe.
How to pay yourself in a Single-Member LLC?
If you leave your Single-Member LLC in its default tax status as a Sole Proprietorship with the IRS, you will not be taking a salary from the company, but instead you will be taking distributions (which are subject to self-employment taxes).
If your Single-Member LLC elects to be taxed as an S-Corp with the IRS, then you will have to take a reasonable salary, pay payroll taxes, and file a corporate 1120S tax return every year.
In order to put money into the LLC you will make what are called Capital Contributions. And in order to take money out of the LLC, you will take what are called Capital Distributions.
Can I get an EIN for a Single-Member LLC?
Yes, you can obtain an EIN – also known as a Federal Tax ID Number – from the IRS for your Single-Member LLC. You will use your EIN to open your business bank account, obtaining financing, file certain taxes, and for some business licenses and permits.
How to Form a Single-Member LLC?
You will form a Single-Member LLC the same way you would form any LLC; you will file Articles of Organization (or similar form; like Certificate of Organization or Certificate of Formation) with the Secretary of State in the state where you’re forming your LLC. For example, if you’re forming a Single-Member LLC in California, you will file an Articles of Organization with the California Secretary of State.
There are no states which have a different Articles of Organization for Single-Member LLCs, however some states’ Articles of Organization will have a checkbox where you will designate whether or not your LLC is Single-Member.