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The 4 Tax Forms Every Single Member LLC Owner Needs To Have

Aug 24, 2008
Based on the questions I get from the readers of my website, many people are confused about how their single member limited liability company will be taxed.

Questions like:

I am trying to figure out how I will be taxed as a single member LLC, which forms do I need to use?

When I pay myself, how much to I need to withhold for income tax?

I understand that an LLC can be taxed as a sole proprietor but does that change if I give myself a salary or commission?

Will I be taxed on both the profit from the llc and the income that I pay myself?

So let's answer these questions by starting from the big picture overview.

A limited liability company is not taxed separately as a corporation at the entity level. The purpose of using a pass-through entity like an LLC or partnership instead of a c corporation is to avoid this double-taxation of profit.

Instead, tax is paid by you, personally, on your LLC's net profits, and the LLC does not pay taxes separately.

As a single member LLC, you can choose to be taxed as a disregarded entity. This means that you use a Schedule C to report all your income and expenses and arrive at a net profit or loss.

This net profit is what you pay taxes on. Hence, you want to maximize your legitimate business expenses on your Schedule C.

In terms of paying yourself out of LLC profits, the simplest way is to simply write yourself a check. No payroll process, no withholdings. You are not receiving a "salary", you are receiving your share of the limited liability company's profits.

Most people don't realize that everyone pays quarterly estimated taxes. For employees, your employer withholds that tax from your paycheck and pays your taxes for you. As a self-employed business owner, you are now responsible for making quarterly estimated payments.

To figure out the right amount to withhold, it's helpful to use software like Turbotax.

In addition to income tax, you will also report Self-Employment tax. You are required to pay this at the end of the year. It is calculated based on your Schedule C and a separate Schedule for calculating the exact amount of your SE taxes. There are a few deductions on your Schedule C that are not permitted on your Schedule SE--for example, your limited liability company can take a deduction on your Schedule C for health insurance premiums paid for you and your family, but cannot take that deduction on on your Schedule SE for purposes of self-employment tax.

Therefore, the forms needed to do your taxes for a single member LLC taxed as a disregarded entity (i.e. as a sole proprietor), consist of:

* Form 1040
* Schedule C
* Schedule SE
* Your appropriate state tax forms
About the Author
Simon Maher edits the website http://www.LLC-Made-Easy.com, which helps small business owners protect their assets and reduce taxes by forming a limited liability company.

Copyright 2008, Simon Maher and www.LLC-Made-Easy.com
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