What Is a Single-Member LLC?
A limited liability company with only one owner is called a single-member LLC (SMLLC). An LLC is a business entity that separates the business from the owner, offering some liability protection. It also is a pass-through taxing entity that allows the owner to pay the income taxes of the business on their personal tax return. For tax purposes, the SMLLC is considered to be what’s called a “disregarded entity,” meaning that the activities of the business are included on the owner’s personal tax return. The SMLLC owner uses Schedule C to calculate the business’s net income, transferring it to their Form 1040 along with other income.
Does a Single-Member LLC Need a Tax ID Number?
Most businesses need what’s called an Employer ID Number (EIN) for federal tax purposes, even if they don’t have employees; in a way similar to a social security number. Most new SMLLCs need an EIN. In particular, the business needs an EIN if
It has employeesIt is required to file one or more specific types of excise tax forms
A single-member LLC that does not have employees and does not have an excise tax liability should use the name and social security number of the single-member owner for federal tax purposes. Even if it’s not required for tax purposes, a single-member LLC may need an EIN to open a bank account or if state tax law requires the single-member LLC to have a federal EIN.
Does a Single-Member LLC Need to Complete a Form W-9?
SMLLC owners working for other businesses or individuals may receive a Form W-9 asking for tax identification information. This form is used to verify the business tax ID for the purpose of preparing a Form 1099-NEC to report payments to the SMLLC owner. Use your personal tax ID as the owner of an SMLLC (Social Security Number or other) on a Form W-9, not the EIN of the LLC.
You will need to give a W-9 form to all non-employees, like independent contractors or freelancers, when you hire them. You’ll need that information for Form 1099-NEC at tax time.
How Does a Single-Member LLC Report Employment Taxes and Excise Taxes?
To report employment taxes, an SMLLC must obtain an EIN and report employment taxes using the EIN of the LLC. This requirement is needed because it is the business, not the individual owner, who is responsible for reporting and paying these taxes. Employment taxes include federal income taxes withheld from employees, FICA taxes (Social Security and Medicare taxes) withheld and payable, and federal unemployment taxes. Businesses pay excise taxes on certain types of business goods or activities, like gasoline, insurance premiums, and occupational licenses. Excise taxes paid by the LLC must also be paid using the EIN of the LLC, not of the individual owner.
Can a Single-Member LLC Choose to Be Taxed as a Corporation?
A single-member LLC can change its tax status to that of a corporation if the owner feels this is a tax advantage. To make the change, the owner files a Form 8832 Entity Classification Election. For tax purposes, the election is treated as if the owner of the SMLLC contributed all of the assets and liabilities to the corporation in exchange for stock. In addition, SMLLC owners may be eligible to take an additional deduction, called a Qualified Business Income deduction. The deduction is up to 20%, based on your net income for the year There are some requirements and limits for taking this deduction. Most non-employees should receive a 1099-NEC or a 1099-MISC form, based on the type of work they did for your business. This form is necessary for all non-employees who do work for your business, including single-member LLC owners.
