Single Member LLC

Single Member LLC is a type of an LLC(Limited Liability Company) that's formed by a single person.

It's a hugely popular entity among small business owners.

In this guide, you'll find all the inner workings of a single member LLC, how it is taxed, how is it different, all of that.

Let's start with an overview:


What exactly is an LLC?

LLC is a business entity that's formed under the state statute. People choose an LLC for its limited liability and pass-through income.

What's this limited liability, you ask? It is a protection that separates the owner's personal assets and LLC's assets, in the events of lawsuits or other major debts.

So, when something goes south and your LLC is being sued, your personal assets remain protected.

This means, the owner is not personally liable for the LLC's debts and obligations. Not all the time, but in most cases.

Now, coming to single member LLC. As the name suggests, it is an LLC with only a single member.

Pretty straightforward.

Ownership of a Single Member LLC

Can anyone own a Single Member LLC?

A single member LLC can have only a single member. No surprise there!

Though, it is called a 'single' member LLC, a member can be any one of the following:

  • An individual,
  • A partnership,
  • A corporation
  • Another LLC
  • Foreigner/foreign entity

In most of the cases, you would find a single individual to be the owner of a single member LLC.

If there are 2 or more people who plan to start an LLC together, you should take a look at multi-member LLC.


For non-residents

Non-residents can form single-member LLC in the US with ease. It can be owned by a foreign entity or even a foreign individual.
Sole proprietorship

Are single member LLC & sole proprietorship the same?

Single member LLC & sole proprietorship are similar in many ways.

IRS treats them the same. So, the income taxes for them are the same.

They both have only a single owner.

The most crucial difference between them is that LLC offers liability protection, whereas sole proprietorship does not. Meaning: owners of an LLC are not personally liable for business debts. But in a sole proprietorship, owners are personally liable.

This protection offers a lot of relief to LLC owners.

And that's why single member LLC is seen as the natural next step for people who are already running sole proprietorships.


What are my tax obligations?

Even though personal and business assets are considered separate due to the limited liability, the owner and the LLC are NOT considered separate, from a tax point of view

IRS treats the single member LLC as a part of the owner's tax returns and is 'disregarded' as a separate entity.

That's why single member LLCs are also called disregarded entity.

This is exactly like how the IRS treats sole proprietorship.

There are 2 ways an owner can choose to be taxed in a single member LLC:

Disregarded entity

  • By default, single member LLC is treated as a disregarded entity i.e, owner and the LLC are considered the same.
  • The member pays income taxes on the LLC's income, not the LLC.

LLC as a corporation

  • By filing Form 8832, single member LLC can be treated as a corporation i.e, owner and the LLC are considered separate.
  • LLC pays income taxes on its income, not the member. Just like a C-corp, taxes are paid at the corporate tax rate, which is lower than most personal income tax rates.

In this guide, we'll mostly be dealing with disregarded entities. Read our guide below for a detailed look at LLC treated as a corporation.

Pass-through income

Disregarded entity is a pass-through entity.

What does that mean? LLC's business income is passed on to its owner and is not taxed at the LLC's level. Tax is paid only once at the owner's level.

You don't end up in a situation where the LLC pays tax on its income and after that money is transferred to the member, it is taxed again as personal income.

That's how a disregarded entity avoids double taxation.

Tax reporting

IRS does not treat a disregarded entity as separate from its owner.

So, for income tax purposes, IRS treats the LLC just like it treats its owner.

And the single owner can be a single individual, a corporation, a partnership or even another LLC.

When the disregarded entity's owner is a single individual*, IRS treats it like a sole proprietor.

  • Income and losses of such an entity is reported on the the single owner's Form 1040 — US Individual Tax Return.
  • Owner's Social Security Number (SSN) is used while paying taxes.

When the single owner is a partnership, corporation or another LLC, IRS treats the LLC as a branch or division of the owner

  • Income and losses are reflected on the owner's federal tax return.
  • Owner's EIN is used while paying taxes, not the LLC's EIN.

This way, a disregarded LLC doesn't have to file income tax returns. Only the owner does.

Employment taxes

There's a slight difference here in how the LLC is treated for employment tax purposes.

Before it gets confusing, let's recap a little.

For income tax purposes, IRS does NOT consider a disregarded entity separate from its owner.

However, when it comes to certain employment taxes and excise taxes, the owner and the LLC are considered separate.

That's why you use the EIN of the LLC, not owner's EIN or SSN, for certain employment taxes and excise taxes


Department of the Treasury(TREAS)

Section 301.7701-2(c)(2)(i) of the regulations states that, except as otherwise provided, a business entity that has a single owner and is not a corporation under 301.7701-2(b) is disregarded as an entity separate from its owner (a disregarded entity). However, the regulations also treat a disregarded entity as a corporation for purposes of taxes imposed under subtitle C (employment taxes).

Question: Do I have to pay employment taxes when I have no employees?

Answer: Some yes, some no.

  • If you have employees — payroll taxes + self-employment taxes
  • If you have no employees — self-employment taxes

Let's understand these taxes little more.


Payroll tax

If the LLC has an employee, it will have to pay payroll taxes on the wages paid. These payroll taxes are social security tax, medicare taxes and unemployment insurance.

Who pays this tax, member or the LLC? LLC.

However, half of this tax amount is collected from the employee's paycheck. Only the other half is contributed by the LLC.

Amount that the employee has to pay is withheld by the LLC when issuing paychecks.

FICA tax(Social Security & Medicare) - Employer portion is 6.2% for Social security and 1.45% for Medicare. LLC withholds the same amount from the employee's paycheck as well

FUTA tax - It covers unemployment insurance. Of the total amount of 6%, states usually have a 5.4% credit. The other 0.6% is paid by the employer.


Self employment tax

This is kind of like payroll taxes, but paid by the members.

Member doesn't have a paycheck since he/she is considered 'self employed'. So, this tax cannot by withheld by the LLC when money is withdrawn. It'll have to be paid separately by the member.


For non-residents

US non-residents who own an LLC don't have to pay self employment taxes.

How to pay all these taxes?

Whether it is income tax, payroll tax or self-employment tax, all the taxes in a single member LLC are paid as estimated taxes to the IRS.

What's this estimated tax, you ask?

Estimated tax payment is the method of splitting up your total annual tax amount into 4 quarterly payments. Instead of paying all your tax in one shot, you break it into 4 instalments.

So, you have to estimate your income ahead of time and pay taxes on them at the end of a quarter — in April, June, September and January.

IRS is pretty serious about this.

They charge a penalty if you fail to pay an instalment or pay it late.

So, keep this in mind.

Also, if you're just starting up or if you haven't earned any income during a quarter, you can skip an instalment entirely.

Pay Yourself

How do I pay myself from an LLC?

Alright, time to discuss how you can pay yourself in a single member LLC.

Member's draw

For a disregarded entity, the member can take out money from the LLC in almost any amount. This is known as a member's draw. Many single-member LLC owners use this as an alternative for salary and dividends.

Though the member has the flexibility to draw any amount, there are some state law imposed legal limitations that prevent the member from drawing way too much.

Unlike a salary paycheck, the LLC doesn't need to withhold tax for social security and medicare from this withdrawal.

Salary and Dividends

For a disregarded entity, it is not possible for a member to take a paycheck nor get paid through dividends.

However, if the Single member LLC is elected to be treated as a corporation, the member can get a monthly paycheck and/or dividends.

If you've elected to be treated as a corporation, you're almost legally required to consider shareholders as employees.


It's important not to mix your personal expenses with your business expenses. You'll risk piercing the protection you get from having a limited liability.

Can I hire employees in an LLC?

There is no issue in hiring employees in a single member LLC.

The only limitation is that the LLC cannot hire the member as an employee. That's all.

There are a few responsibilities with hiring employees:

  • LLC has to withhold tax from the employee's wages for Social Security, Medicare and unemployment insurance, deposit it with the IRS and state agencies.
  • LLC has to file Form W-2 for each employee with the IRS.
  • Depending on the state you're in, LLC has to notify state and local authorities about the new hires.

For non-residents

If a non resident-owned LLC has an employee living the US, you would have to start paying payroll taxes. If you wish to avoid having to pay payroll taxes, you can hire independent contractors or freelancers. The law asks you to pay taxes if you have a 'dependent agent' in the US. How to establish 'dependence' is a slightly complicated area. It is best to speak with a lawyer regarding this.

LLC Formation

How to form your Single member LLC?

Here are the 7 steps to form a single member LLC:

  • 01Choose a state of formation
  • 02Pick a name and reserve it with your state before filing your LLC (optional)
  • 03Nominate a registered agent
  • 04Decide if the LLC is member-managed or manager-managed
  • 05Draft an operating agreement
  • 06Apply for EIN
  • 07Open a bank account

If you wanna know more about the exact formation steps, read our step-by-step guide below


Disregarded entity is a term used to refer to entities that are not considered separate from its owner by IRS. By default, single member LLC is treated as a disregarded entity.

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