Taxpayer asks:
Should I submit the 1120s form or the 1040 Schedule C for my LLC – single proprietor?
Last year (first year of being an LLC) I sent in the 1120s, but I understand that because I am a sole proprietor, I can submit my tax information on the 1040 Schedule C (which I prefer)
Taxgirl says:
One of the great things about a limited liability company (LLC) is its versatility. It combines the utility of a corporation with the simplicity of a sole proprietorship (or partnership).
An LLC with more than one member is typically taxed as a partnership, which means you would use a form 1065, U.S. Return of Partnership Income (downloads as a pdf). However, if an LLC is owned by just one person, as sounds like the case here, it is a Single-Member Limited Liability Company (sometimes called an SMLLC) and can be disregarded for federal income tax purposes. That means that you don’t have to file a separate tax form and can simply file your taxes using your Schedule C on your form 1040, as is your preference. No separate entity tax return is required.
One quick note: an LLC is organized under state law. However, tax elections are federal. That means that you can elect to be treated differently than the default for your entity by filing an election with the Internal Revenue Service (IRS). For example, if you prefer to be taxed as a C corporation, you can do that by checking a box; the same holds true for an S corporation. If you filed a form 1120-s last year, it could have been because of some misguided advice or by accident – or it might be the case that you are actually organized for tax purposes as an S corporation. Check with your advisors if you’re not sure.
A lot of taxpayers don’t know that a company organized as an LLC can be taxed as a C corporation or an S corporation – those are simply tax elections. The form for making those elections is a form 8832, Entity Classification Election (downloads as a pdf). Restrictions and deadlines apply so I recommend checking with an attorney if you have questions about incorporation, organization, and tax elections.
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.
