Taxes on a Single-Member LLC

Single-member LLCs are automatically treated as disregarded entities by the IRS for tax purposes. However, single-member LLCs might elect to be taxed like corporations.

What exactly is a Single-Member LLC?

A single-member LLC is a company with just one owner that is not taxed separately. A single-member LLC, like a sole proprietorship, is taxed as a disregarded entity by default.

Disregarded entities are subject to “pass-through taxes” since the government overlooks them. This implies that all revenues and losses from the company are passed directly to you, the business owner. In turn, you must pay income and employment taxes on your earnings using your personal tax return.

Taxation of C and S Corporations

Single-member LLCs have two alternative options for paying income taxes: C corporation or S corporation.

The LLC is taxed like a C corporation (C corp), which means that it pays taxes on gross revenue and then distributes the profit to the owner. The owner must then pay income tax on the dividends, a practice known as “double taxation.”

Due to S corporation (S corp) taxes, the LLC owner may enjoy limited responsibility while avoiding double taxation. The owner might be deemed an employee of the LLC, which means that they only pay tax on the wage they set for themselves, not on the remaining earnings.

Federal Taxes on LLCs

You must submit the following paperwork as the owner of a disregarded entity in order to file your income taxes:

Form 1040: Individual Income Tax Return. This form is required for all taxpayers.
Schedule C: The form for reporting revenue from your company (i.e. profits and losses).
Schedule E is the form used to record rental income and other assets.
Schedule SE: The form used to file and pay self-employment taxes. A disregarded entity’s owner is required to pay Medicare and Social Security taxes.

State Taxes on LLCs

State taxes are levied on a per capita basis. The only difference between paying federal and state income taxes is the paperwork.

Some states levy a unique business tax on LLCs. This tax is often referred to as a franchise tax, although it may also be referred to as a “Business Excise Tax” or a “Privilege Tax.” This tax might be either an annual charge with a fixed amount or a percentage of the company like any other tax.

If you offer a product or service, you will almost certainly be required to pay sales tax. Visit our sales tax guide to discover all there is to know about collecting sales and use tax.

Employee Taxes in an LLC

If you recruit workers for your company, you must register for employee taxes in your state. Paying for workers’ compensation and withholding income taxes on behalf of your employees are examples of these levies.

You’ll need an EIN for your LLC in order to record employee taxes.

FICA taxation

The Federal Insurance Contributions Act (FICA) taxes include two kinds of taxes that are paid by all businesses and employees: the Social Security tax and the Medicare tax. Employers must meet their workers’ FICA tax responsibilities. As a consequence, each employer and employee pay half of the overall FICA tax rate.

Taxes on Unemployment

Employers are obliged to pay both federal and state unemployment taxes (FUTA) (SUTA). These taxes finance unemployment benefits for those who are between jobs. Accounting & Bookkeeping for Single-Member LLCs

Accounting & Bookkeeping for Single-Member LLCs

To safeguard your corporate veil, you must keep your single-member LLC’s money separate. Because there is just one member managing the funds, single-member LLCs sometimes have greater trouble safeguarding the corporate veil.

However, you may simply separate your personal and company funds by establishing a specialized business bank account, obtaining a business credit card, and developing a decent accounting system.

The Advantages of Good Accounting

Good accounting may bring some significant benefits by ensuring that every conceivable deduction is tracked and recorded:

Every year, it saves you hundreds of dollars in taxes.
Keeps you out of problems with the IRS and state agencies.
It reveals the location of your money , as well as how to spend it.
It saves you time and hassle.