Posted Wednesday, October 18, 2023
Single-member limited liability companies (what we abbreviate as SMLLC) are treated the same way as a sole proprietorship since in the eyes of most taxing agencies SMLLCs are considered a disregarded entity. Just as the name suggests, the entity is disregarded for tax purposes and all business activities are reported on Schedule C and your Form 1040.
While the IRS disregards the general SMLLC, several states have a separate form or filing. California uses Form 568. New York uses Form IT-204 LL. Texas has an annual franchise tax filing on Form 05-163. We can keep going but you get the idea.
Therefore, SMLLC equals sole proprietor from a federal income taxation perspective and most states. However, keep in mind that a SMLLC enjoys some distinct benefits over a sole proprietor such as liability protection and improved transfer of ownership through its Operating Agreement.
Jason Watson, CPA, is a Senior Partner of WCG CPAs & Advisors, a boutique yet progressive tax,
accounting and business consultation firm located in Colorado serving clients worldwide.
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Taxpayer's Comprehensive Guide to LLCs and S Corps 2023-2024 Edition