An LLC is a new entity created by state statute. The IRS did not create a new tax classification for the LLC when it was created by the states; instead IRS uses the tax entity classifications it has always had for business taxpayers: corporation, partnership, or sole proprietor. An LLC is always classified by federal law as one of these types of taxable entities.

A multi-member LLC can be either a partnership or a corporation, including an S corporation. To be treated as a corporation, an LLC has to file Form 8832, Entity Classification Election, and elect to be taxed as a corporation. A multi-member LLC that does not so elect will be classified by federal law as a partnership. A single member LLC (SMLLC) can be either a corporation or a single member “disregarded entity”. Again, to be treated by federal law as a corporation, the SMLLC has to file Form 8832 and elect to be classified as a corporation. An SMLLC that does not elect to be a corporation will be classified by the existing federal guidance as a Disregarded Entity which is taxed as a sole proprietor for income taxes.

An LLC applies for an EIN by filing Form SS-4, Application for Employer Identification Number, and completing lines 8 a, b, and c. An SMLLC that is a disregarded entity and does not have or will not have employees does not need an EIN. It should use the name and TIN of the single member owner for federal tax purposes. However, if a SMLLC, whose taxable income and loss will be reported by the single member owner, nevertheless needs an EIN to open a bank account or if state tax law requires the SMLLC to have a federal EIN, then the SMLLC can apply for and obtain an EIN. If the SMLLC has no employees, it will not use this EIN for any federal tax reporting purpose.

If an SMLLC has or intends to have employees, the EIN rules are different. The SMLLC will be responsible for collecting, reporting and paying over employment tax obligations using the name and EIN assigned to the LLC.

Filing Federal Tax Forms

If the LLC is a sole proprietor for federal tax purposes, the entity should file either:

Form 1040 Schedule C, Profit or Loss from Business (Sole Proprietorship)
Form 1040 Schedule E, Supplemental Income or Loss
Form 1040 Schedule F, Profit or Loss from Farming
Form 1040 Schedule J, Income Averaging for Farmers and Fisherman

If the business has net income over $400, it may be required to file Schedule SE, Self-Employment Tax.

For more information on SMLLCs, contact Debbie Simmons at (310) 701-1825.