Everything you need to know about SMLLCs

Single-Member Limited Liability Company Taxes | Estimated Taxes | Tax Returns​

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Single Member LLCs (SMLLCs) are one of our areas of expertise. We understand your company’s pain points. It is our goal to eliminate challenges and help your business file accurate tax returns. 

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Whether it’s a quick consultation or a longer-term project, we can assist you with:

  1. Identifying your tax strategy and alternative investment strategies 
  2. Tax filing and compliance (including international and multi-state filing)
  3. Implementing stock options and equity compensation plans
  4. IRS audit management and representation

Don’t let tax season be a source of stress. Our CPAs have more than 20 years of experience, and are dedicated to your business growth.

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To save money on an SMLLC tax return, consider maximizing business expense deductions, keeping thorough records, making use of tax credits available for businesses, and potentially exploring tax-advantaged retirement plans for self-employed individuals. 

 

Consulting with a tax professional can also provide tailored strategies for your specific business situation.

Selling your SMLLC affects your taxes as follows:

 

Capital Gains: If your SMLLC is sold for more than its basis (initial investment plus any improvements minus depreciation), the difference is typically treated as a capital gain, taxed at the individual level.

 

Tax Reporting: The sale is reported on your individual tax return, often on Schedule D and Form 8949 for capital gains and losses.

 

Potential Recapture of Depreciation: If assets of your SMLLC have been depreciated, there might be recapture of depreciation, taxed as ordinary income.

 

State Taxes: State tax implications may also apply, depending on the state laws where your SMLLC operates

An Employer Identification Number (EIN) is not mandatory for a SMLLC without employees, but it is recommended. It’s useful for banking purposes and helps maintain the separation between your personal and business finances​.

Yes, you can pay yourself a salary from an SMLLC. If the LLC is taxed as an S-Corporation, you must pay yourself a reasonable salary before taking any remaining profits as distributions​.

Failing to separate personal and business finances can lead to “piercing the corporate veil,” meaning you could lose the liability protection offered by the LLC structure. It’s crucial to keep personal and business finances distinct.

What is the SMLLC tax rate?

The tax rate for a single-member limited liability company (SMLLC) depends on how the business is taxed. An SMLLC is considered a disregarded entity by default for federal tax purposes, meaning that its income is reported on the owner’s personal tax return. To understand the specific tax implications for an SMLLC in your state, consult with one of our tax professionals.

When does a single-member LLC need to pay taxes?

A single-member LLC (SMLLC) is generally required to make quarterly estimated tax payments. Taxes must be paid for the income you receive throughout the year. You can choose to withhold these taxes (by saving an estimated amount from gross wages to pay directly to the government), or make estimated payments.

Estimated payments cover income and other taxes, such as self-employment and alternative minimum taxes.

Deadline to pay your estimated taxes

For estimated tax purposes, the tax year is divided into four payments periods:

  • April 15th – Covers income earned from January 1 to March 31
  • June 17th – Covers income earned from April 1 to May 31
  • September 16th – Covers income earned from June 1 to August 31
  • January 15th – Covers income earned from September 1 to December 31

NOTE:  If the payment deadline falls on a weekend or legal holiday (i.e. Martin Luther King, Jr. Day in January, and Washington D.C.’s Emancipation Day in April), you have until the following business day to submit your payment.

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How to calculate your estimated taxes​

Below are suggestions to help you calculate your estimated taxes:

  • Start with the income, deductions and credits listed on your previous tax return.
  • Next, estimate your expected adjusted gross income, taxable income, taxes, deductions, and credit, based on the current tax rates.
  • Complete Form 1040-ES using the IRS instructions or speak to one of our CPAs for assistance. 

If your estimate was too high or too low, complete a second Form 1040-ES to recalculate your estimated tax for the next submission period.

How to pay your estimated taxes​

Form 1040-ES can be submitted along with your estimated payment by mail, online, or via the IRS2Go app. You can pay your estimated taxes once-off or in installments, as long as the total amount is paid by the deadline at the end of the quarter.

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SMLLC Tax Returns

An individual owner of a single-member LLC must use Schedule C of Form 1040. If the individual owner operates a trade or business, their net earnings are taxed as self-employment taxes, in the same manner as a sole proprietorship. Information about the other schedules on Form 1040 can be found on this page. 

However, if the SMLLC is owned by a corporation or partnership, it should be reflected on its owner’s federal tax return as a division of the corporation or partnership.

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How individual owners should handle Schedule C

  • Keep accurate books. To complete Schedule C, you require your business’ financial records, including a balance sheet and income statement. Accurate bookkeeping mitigates the risk of reporting too much or too little income. 
  • Record your income. Income is recorded in the first section of Schedule C. To help you calculate income, page 2 of the schedule includes a worksheet for the cost of goods sold. 
  • Record your expenses. Expenses are recorded on the second section of Schedule C. This includes home office, vehicle and miscellaneous expenses.
  • Calculate your net profit or loss. This is done by subtracting your total expenses from your gross income.
  • Calculate your income and self-employment tax. Net profit or loss must be entered on Page 1 of Form 1040, to calculate your income tax. Net profit or loss must also be entered on Schedule SE, to calculate self-employment tax. 

Contact us if you have questions about filing a return for an SMLLC owned by a corporation or partnership.

For Most SMLLCs

The IRS does not issue refunds before mid-February 2024 for any returns that claim an earned income credit or additional child tax credit. In this instance, your entire refund, along with the portion for these credits, will be processed thereafter.

Schedule C Expenses

Example Doc

Real Estate and AirBnB Schedule E Expenses

Example Doc

Self-Employment Taxes

An SMLLC also has to pay self-employment taxes (SE taxes). SE taxes are specifically earmarked to pay for Social Security and Medicare. 

The self-employment tax rate is 15.3%. Of this, 12.4% is for social security and 2.9% for Medicare.

Find out more about how other business entities are taxed:

Independent Contractor Tax
Partnership Taxes
S Corporation Taxes
C Corporation Taxes

Understanding tax requirements and permissible deductions is an important part of accurate tax filing.

Fusion CPA experts can help you.

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More information on SMLLCs

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Disclaimer: This page is not intended to be the rendering of legal, accounting, tax advice, or other professional services. Articles are based on current or proposed tax rules at the time they are written, and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.

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