IRA Financial Group
IRA Financial Group

Single Member LLC

The member of a single member limited liability company (“SMLLC”) will benefit from the limited liability associated with a limited liability company (“LLC”) as well as the benefit of a single level of tax and the flow-through of business losses.

For tax purposes, a SMLLC is treated as a sole proprietorship and will not require a separate federal income tax filing. The income tax can be reported on schedule C of the member’s personal income tax return (Form 1040). For federal income tax purposes, a SMLLC is disregarded. Therefore, if a SMLLC is treated as a disregarded entity for federal income tax purposes, the income of the LLC is taxed to the owner directly, without any entity level tax. In addition, LLC losses would “flow through” to the member and the member could deduct his, her, or its ratable share of the losses generated.

Operating Agreement

It is extremely important to create an operating agreement to separate the LLC from the sole individual member. Without the formality of an LLC operating agreement, the LLC would look a lot like a sole proprietorship – which does not limit a member’s personal liability for business debts.