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Thread: Which is the better Tax election for Single-Member LLCs (Texas)

  1. #1

    Default Which is the better Tax election for Single-Member LLCs (Texas)

    My company was started as an ecommerce firm. Entity I elected is "LLC", however, since I'm the only member of the LLC the IRS gave me two choices for tax purposes - categorize the entity as a "Sole Proprietorship", or as an "S-Corp".

    Being that the business has a single member which is the better selection that gives me an advantage from a taxation point-of-view?

    Once you make an election ( SMLLC /Sole Proprietorship vs SMLLC/S-Corp) can you change it.

    Thanks in advance for your assistance guys. Really appreciate it.

  2. #2
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    Quote Originally Posted by egrizzly View Post
    My company was started as an ecommerce firm. Entity I elected is "LLC", however, since I'm the only member of the LLC the IRS gave me two choices for tax purposes - categorize the entity as a "Sole Proprietorship", or as an "S-Corp".

    Being that the business has a single member which is the better selection that gives me an advantage from a taxation point-of-view?

    Once you make an election ( SMLLC /Sole Proprietorship vs SMLLC/S-Corp) can you change it.

    Thanks in advance for your assistance guys. Really appreciate it.
    You can change the type of business, yes. However, you don't really need to do it unless you start hiring employees or need to for financial purposes. Some businesses won't even try to convert, they'll just form another company and transfer the assets to the new one. The company I'm working for now is doing that because they're currently an s-corp but want to go to an LLC.

    Sole pro has no limited liability, so prepare to take all financial losses personally on your tax return. In other words, if someone sues you, you can't file bankruptcy on behalf of the company and not feel the heat personally, YOU will personally have to declare bankruptcy.

    LLC is the best option because you don't need to do paperwork for days. They're relatively easy to set up and aren't very expensive.

    S-Corps are mini c-corps. There's lots of paperwork. If you're going this route, I recommend hiring an attorney.
    Last edited by Owen; 12-01-2017 at 12:29 PM.

  3. #3

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    The IRS treats one-member LLCs as sole proprietorships for tax purposes. This means that the LLC itself does not pay taxes and does not have to file a return with the IRS. As the sole owner of your LLC, you must report all profits (or losses) of the LLC on Schedule C and submit it with your 1040 tax return.

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