How Does a Single Member LLC File a Federal Income Tax Return?

A limited liability company (LLC) is an entity allowed by state law. But for federal tax purposes this type of entity is not recognized. According to the IRS, an LLC with two or more members can be treated as a partnership, a corporation or an S corporation for federal income tax purposes.

In order to be treated as a corporation, the members of the LLC must file Form 8832, Entity Classification Election. If they do not make this election, the LLC will be treated as a partnership for federal income tax purposes.

The IRS indicates that a single member LLC cannot be treated as a partnership. It can elect to be treated as a corporation by filing Form 8832. A single member LLC could also elect to be treated as an S corporation by filing Form 2553. If the LLC does not make this election it will be treated as a "disregarded entity", meaning that the single member of the LLC will be treated as a sole proprietor for federal income tax purposes.

A single member LLC that has not elected to be treated as a corporation would include the income, deductions and credits from the business activity conducted under the LLC on his or her personal income tax return. Schedule C, Form 1040 would be filed for business income, Schedule E for supplemental income such as income from a rental property, and Schedule F if the LLC is in the farming business. Schedule SE would also have to be filed for the self-employment tax on net earnings from the LLC.

If the single member LLC has elected to be treated as a corporation, it would file Form 1120, and if electing S corporation status it would file form 1120S.

The IRS points out that treating a single member LLC as either a corporation or a sole proprietor is a mechanism for federal tax purposes only and does not affect the entity's legal status as a limited liability company.

If a single member LLC has employees, it will be responsible for filing and paying employment tax returns. And depending on the business the LLC conducts, there may be excise tax obligations. According to the IRS, as of January 1, 2009 a single member LLC must file employment and excise tax returns using the name and employer identification number assigned to the LLC. An employer identification number can be obtained online on the IRS website.

As pointed out on Nolo, most states tax LLCs on their income the same way they are taxed at a federal level. But a state may charge an annual registration fee or franchise tax on a single member LLC. You should check with the department of state, department of corporations, or department of taxation or revenue in the state in which the LLC is organized or is registered to conduct business to find out the reporting requirements and any fee or tax that applies.

Sources:

Apply for an Employer Identification Number (EIN) Online, IRS

Form 2553, Election by a Small Business Corporation

Form 8832, Entity Classification Election

How LLCs are Taxed, Nolo

Limited Liability Company (LLC), IRS

Publication 3402, Taxation of Limited Liability Companies