SINGLE - MEMBER LLC

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SINGLE-MEMBER LLC
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By: Allen T. May, C.E.O. of Westwood Associates, LLC
2018 is proving to be a fantastic year for entrepreneurs! There has and continues to be tremendous talk on the federal incomes tax benefits the Republicans recently passed with regard to the Single-Member LLC. Its a great time in Texas to be the sole owner of a small business. Remember, we don't have state income taxes which is the envy of most other state's citizens. Or, as I like to call them, "Soon to be Texans." With President Trump's new lower tax plan, changes in business laws, and a growing economy, operating your single-owner business as a Single-Member LLC makes it easier and more attractive than ever to pursue your dreams as an entrepreneur.
Single-Member LLCs are LLCs with just one owner - YOU - yet they have the same desirable features as the multi-member LLC, such as what I have with Westwood Associates, LLC. For the sole-proprietor, operating as an LLC makes the business appear more grounded, reliable and established. What entrepreneur doesn't want that? Think of the prestige a business enjoys from being an LLC as opposed to a dba (doing business as) sole- proprietor. Other businesses will perceive you as being more committed to your business. Banks and financial institutions will loan money to your business. Contacts will be awarded to your business. Make no mistake. The entrepreneur who owns a sole-proprietorship for a growing and respectable roofing company that attempts to bid on a contract for his local school district or state department will be DENIED the privilege to bid. Why? Because he's a sole-proprietorship and NOT another legal entity, such as an LLC or c-corp.
As an entrepreneur, if you're the sole-owner of a small business and you choose not to give it any legal structure such as an LLC, c-corp or s-corp, then your business will be considered a "sole-proprietorship by default. At the end of the day, what does this mean for you? First and foremost: Good luck on getting lines of business credit and you can forget about most contracts. As a sole-proprietorship, your small business isn't considered legally separate from YOU. Hence, you personally are liable for all debts, injuries and damages caused by your business and its employees. By contrast, if you organize your sole-proprietorship as a Single-Member LLC, you generally will not have personal liability for debts, injuries, or damages caused by your business.
By default, the IRS will treat your newly formed Single-Member LLC as what it calls a "disregarded entity" a strange play on words, but the IRS will not look at your Single-Member LLC as "an entity separate from yourself" for the purpose of filing federal tax returns. Instead, just as it would a sole-proprietorship, the IRS will disregard your Single-Member LLC, and you'll pay taxes for the business as part of your own personal tax return, more commonly known as the IRS Form 1040, with the supporting Schedule C. Hence, because responsibility for paying federal income tax on a Single-Member LLC classified as a "disregarded entity" passes thru the Single-Member LLC business profits are called "pass-through taxation." For a very clear understanding of "disregarded entity" and "pass-through taxation" I encourage you to reach out to your licensed certified public accountant.
The bottom line is, if you don't establish your sole-proprietorship as a Single-Member LLC and instead keep it as a sole-proprietorship, you'll still have to pay federal taxes on business income (see IRS form Schedule C); still have to pay social security payroll taxes (15.3%)(see IRS form Schedule SE); quarterly and annual reports on your employees' earnings (see IRS form 940 and 941); quarterly reports with the Texas Workforce Commission; maintain records for the business, and do just about everything thing else you would have to do if the business were a Single-Member LLC. The most significant difference, of course, is that you leave yourself wide open to personal liability.
For additional information on Single-Member LLCs, please feel free to reach out to me via email at: allentmay@gmail.com or via cell phone: (214) 893-2623.
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