Like corporations have shareholders, partnerships have partners, limited liability companies (LLCs) have members. They are just fancy words for “owners” of the entities. A single member LLC (SMLLC) is an LLC with only 1 owner, and there are multiple benefits to structuring your entity this way and a few downfalls.
With the SMLLC, you get the legal protection of an LLC and multiple tax options (if done correctly). You can leave the income & expenses in the schedule C of your personal tax return, or elect to form an S-Corp. The S-Corp benefits is it’s own topic, but having the option to elect how to be taxed is a benefit that is incredibly valuable as your business scales.
The Schedule C option leaves you paying 15.3% taxes on your net income. The S-Corp option avoids this tax, but you have to run payroll. This along with greater costs to prepare your taxes, and bookkeeping, it may make sense to just pay the 15.3% tax. At some point after your business booms and you are making tons of income, paying 15.3% tax will not make sense. It will make sense to pay the added costs of the S-Corp because it is more cost effective. One thing to remember, once you elect the S-Corp option, the IRS doesn’t like you going back, so make sure you consult with your CPA to plan properly.