Limited liability companies, known as LLCs, are a business structure in the United States. This form of business offers liability protection for the owners of the company. This means that the company's debts are separate from that of the owners. Overall, limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.
What is a Single Member LLC?
Single member LLCs, known as SMLLC, are the same as any other LLC. The only difference is that there is only one member. Under current IRS rules, unless the single member LLC chooses to be treated as a corporation, it is treated as a disregarded entity when it comes to federal income tax purposes.
Single Member LLC Benefits
There are many benefits of starting a Single Member LLC in Delaware.
Potential Tax Savings
As compared to a sole-proprietor, a single member LLC allows you to write off business expenses. This can provide huge potential tax savings as compared to acting as a sole proprietorship.
Limited Liability Protections
One of the advantages of forming an LLC is that your personal assets will be protected if something happens to your business. This means that if your LLC is sued, no one may come after your personal assets. If you own a home this is something to majorly take into consideration.
When formed anonymously, a single member LLC provides incredible privacy. This can be done by hiring a company as a registered agent. If you are forming your LLC in Delaware, you will be required to have a registered agent that has a presence in the state. This means that as an owner, you will be afforded complete privacy protection.
More Professional Appearance
When compared to a sole proprietorship, you are looked at more favorably by investors. This is because it gives you a professional appearance when no one knows how many members you have. Being an LLC means you are a business rather than one single person as an entity. This is especially true when applying for loans, or going to the bank overall.
Separate Business Entity
Creating an LLC means that it is a completely separate entity from you and your personal assets. This is how you are afforded liability protection. It is essential if you wish to establish a legitimate business.
How to Form a Single Member LLC
Forming a single member LLC is no different than any other LLC. The only difference is that there is one owner. Some states may require the articles of incorporation to mention this. If the articles of incorporation do mention this, then the operating agreement (the documents that regulate how the LLC operates) will likely be simpler. Outside of these changes, forming a single member LLC is the exact same as any other LLC.
How is a Single Member LLC Taxed?
By default, a single member LLC is a disregarded entity. Similar to a standard LLC, single member LLCs can be taxed as a C or S-Corp through an additional filing with the IRS. It is important to note that although a standard LLC can be taxed as a partnership, a single member LLC cannot because it would require more than one member.
Delaware SMLLC Taxes
Single-member LLCs are required to pay a few different types of taxes, both federal and state. Although these taxes are similar to the taxes that other businesses pay, they are paid in a different method.
- Federal income tax: Because an LLC is not a taxed entity, the IRS designates all single-member LLCs to be taxed as sole proprietors. This means that a single-member LLC will report business income taxes on a Schedule C. Despite this, the net income of the business will be combined with any other income on the personal tax return of the owner.
- State income tax: Delaware has a graduated tax rate. This ranges from 2.2% to 5.55% on income under $60,000. The maximum income tax rate is 6.60% on income of $60,000 or more.
- Self-employment tax: Single-member LLC owners are considered self-employed. As self-employed individuals, single-member LLC owners must pay self-employment taxes to cover Social Security and Medicare. This is based on the net income from the business. The current self-employment tax rate is 15.3 percent in Delaware.
Do I Need an Employer
Identification Numbers for my SMLLC?
An EIN (employer identification number) is required for all single-member LLCs. Even if you have no employees, most banks require an EIN to open a business bank account.
If your single-member LLC is a disregarded entity, then you will most likely need to use your personal tax ID (social security number) when filling out a W-9 form as an independent contractor on your tax returns.