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What is a “Single Member LLC”?

A Limited Liability Company (LLC) can have one or many owners (known as “members”). If just one person is the owner the structure is known as a “Single Member LLC”, which allows you to treat the business as a “Sole Proprietorship” for tax purposes while retaining the other legal protections of an LLC. IRS has recently held that married persons may both own the business and still be classified as a Single Member LLC.

What accounting system should I use for my new business?

It's hard to give a clear answer without knowing more about your circumstances, but we can offer some general guidance. We believe that you should begin with a computer-based accounting system. The costs are modest, it will save you tremendous time compared to manual systems, and the same computer will be important in your business in many other ways. For small companies, the choices of accounting software are becoming somewhat limited due to the clear dominance in the market that QuickBooks enjoys, although Peachtree is another good alternative. If you expect your business to remain simple, using cash-basis accounting, you should consider Quicken Home & Business as a simple alternative to QuickBooks or Peachtree. SCORE can help you with the choice of software, and we offer courses to help you get started with QuickBooks and Quicken Home & Business.

I own a small LLC. Do I withhold taxes when I pay myself?

If you (including your spouse) are the only owner(s) you are a “Single Member LLC”. For tax purposes, you will report the business income on your personal tax return on a Schedule C, just like a sole proprietorship. In this case, money paid to you by the business in the form of compensation is considered a “draw”, not payroll. The business does not withhold payroll taxes, but you are responsible for making estimated tax deposits individually.

As a sole proprietor, do I need an employer identification number (EIN)?

A sole proprietorship that has no employees and files no excise or pension tax returns is the only business that does not need an employer identification number. In this instance, the sole proprietor may use his or her social security number as the taxpayer identification number. A sole proprietor would be required to obtain an EIN only if either of the following applies: (1) you pay wages to one or more employees or (2) you file pension or excise tax returns. Generally, it is a very good idea for a proprietor to use an EIN even though it isn’t required to avoid giving out his or her social security number. It's simple and free to get an EIN and it increases your protection from identity theft.

What is an Employer Identification Number (EIN)?

An Employer Identification Number (EIN) is a nine-digit number that the IRS assigns in the following format: 00-0000000. The IRS uses the number to identify taxpayers who are required to file various business tax returns. EINs are used by employers, sole proprietors, corporations, partnerships, nonprofit associations, trusts, estates of decedents, government agencies, certain individuals, and other business entities.