LLC stands for "limited liability company," and is a type of legal entity that can be formed in the United States. LLCs are formed in order to own and operate a business. Whether you have one member, two, or have multiple owners of your business, an LLC can provide you limited liability. This is similar to that of a corporation and is one of the main reasons that businesses form an LLC.
What is a Single Member LLC?
Single member LLCs (SMLLCs) are essentially the exact same setup as a standard LLC. The only difference between the two is that one has a single member, and the other at least two. Under IRS rules, an LLC can elect to be treated as a corporation for tax purposes. Typically though, an LLC is treated as a sole proprietorship automatically. This means as a single member LLC you will not change the way you pay taxes unless you specifically elect to be taxed as a corporation.
The single-member LLC is a solo business entity. This means that as compared to working as a sole proprietor, there are many benefits. Specifically, because single member LLCs provide a single person the option to be separate from their business. This means that they are not connected to the business for any tax or liability purposes.
Additionally, forming a single member LLC means that you will need to do so within the state of Florida. It will give you a registry in the state, providing a professional appearance. This also provides the ability to obtain funding and is seen as more than just a single person operation. Most banks and investors will not loan or invest in a sole proprietorship.
There is the potential of tax savings when you set up as an LLC, due to the ability to elect taxation. This means that even though you are a single person, you can elect to be taxed either as an individual or a corporation.
How to Form a Single Member LLC
Forming a single member LLC is similar to forming any other LLC. The main difference is that you will need to mention the fact that you are one person in your operating agreement.
Here 4 steps to form a single member LLC in Florida.
Step 1: Name your LLC
In Florida, the name of an LLC must include the phrase “limited liability company” or one of its abbreviations (LLC/L.L.C.). It cannot contain words such as a bank, attorney, or university.
Step 2: Choose a Resident Agent
In Florida, there is no “registered agent” by rather a resident agent. This is a requirement in this state, as they will be in charge of receiving all paperwork for the LLC. This can either be an entity or person, but they must be available at a location in Florida for receiving important tax forms, legal documents, a notice of lawsuits, and official government correspondence on behalf of your business. You can either have a member of the LLC or a paid business stand in as your resident agent.
Step 3: File Articles of Organization
In order to register your Florida LLC, you will need to file the Articles of Organization. This is one with the Florida Corporations Division either online or by mail. In these documents, you will provide the name of your LLC, the resident agent, the services you offer, and then pay the filing fee.
Create an Operating Agreement
Although not legally required for an LLC in Florida (or most other states), it is a good idea to have an operating agreement. The operating agreement is a legal document that outlines all of the operating procedures of an LLC. It will show you how to reduce the risk of conflict between owners in the future should you ever bring another partner in.
How is a Single Member LLC Taxed in Florida?
There are a few different fees and taxes that single-member LLCs must pay. These are on both the federal and state level. As a business entity, these taxes are paid similarly to how other businesses pay taxes. The only difference is the facilitation.
If you choose to file as a c or s corp, then you are essentially being taxed as a corporation. Because an LLC is typically automatically taxed as a disregarded entity, being taxed as a corporation is a completely different situation. Although a single member LLC can be taxed as a sole-proprietor, a single member LLC cannot be taxed as a partnership because it would require more than one member.
What Taxes do Single Member LLCs Have to Pay?
Federal Income Tax
Because an LLC is not a taxable entity, it means that single-member LLCs are taxed as sole proprietors. The schedule C form is how a single-member LLC reports business income taxes. The net income from this form will be combined with other income on the owner’s income tax return and taxed at their bracket rate.
Being a single-member LLC owner is exactly the same as a sole proprietor when it comes to self-employment tax. LLC owners are considered self-employed which means that self-employment taxes such as Social Security and Medicare taxes must be paid. This tax is paid at a rate of 15.3 percent on the first $128,400 of net income and then 2.9 percent on the net income that is in excess of $128,400.
State Income Tax
In some states, there is a state income tax, and in Florida, that state income tax is 4.25%. It is good to note that the LLC itself does not pay a state tax, but LLCs must file an annual report with a filing fee of $138.75.
Employer Identification Numbers
Similar to a social security number, an EIN is an employee identification number. Even if you do not have an employee, you still need an EIN. This is required if you want to open a business bank account, which can lead to obtaining loans and funding.
How to Apply for an EIN
As a single member LLC, you can apply for an EIN by filing Form SS-4. This is the Application for Employer Identification Number. If your single-member LLC is a disregarded entity, then you will only need to use your personal tax ID (SSN) when filing the W-9 form as an independent contractor, and you will not need an EIN.
Is Forming an SMLLC Worth it?
The only reason why you would not want to form a single member LLC is if you run a side business with little liability and minimal profit. If you are a sole proprietor, then forming a single member LLC can provide you the opportunity to have limited liability protection.
This can make it worth it because it means you will be self-employed and running a corporation. It will allow you to obtain funding, look legitimate, but also protect yourself and your assets. Overall it is the best option.
If you are undecided of whether or not a single member LLC is worth it, a trusted business lawyer can help. Speak with a professional today to find out which business type is best for your unique situation.