Single Member LLC and 1099s

By Jennifer Reuting, author of Limited Liability Companies for Dummies™

Question:

My husband has started doing some contract work training Emergency Medical Service Providers... he is licensed and works full time as a firefighter. The companies are giving him 1099s, and as LLCs themselves they are not wanting to put him on payroll. I know we need to do something in order to validate the extra income and an LLC is the way we were told to go. It will be a single LLC, since we will not benefit from me being a member. Is an LLC the right thing? After reading Limited Liability Companies for Dummies, I am a little nervous, but I don't want to start recruiting members. This is great money, more than our salaries put together, but I want to do it correctly!

Answer:

When your LLC has only one member, it's called a single-member LLC. Single-member LLCs are treated as disregarded entities by the IRS as discussed in The Skinny on Single Member LLCs. When LLCs came into existence, they were intended to be treated as partnerships. Just because you have a single member LLC this does not mean you don't have options. You can still make a tax election, you just can't elect partnership taxation. If you want to be subject to corporate taxation, simply file form 8832, Entity classification election (within 75 days of your formation date. From there, you can either pay taxes as a corporation or elect S-corporation taxation, by filing form 253 with the IRS.

To keep the liability protection in your single member LLC remember the following:

• Be Diligent about keeping your business assets and cash flow completely separate from your personal assets and cash flow.
• Sign all your documents as owner, on behalf of your LLC.
• Act like a corporation. Comply with all corporate formalities, such an initial and annual meetings, keeping minutes and passing resolutions. If may seem silly to have a meeting with yourself, but documenting all decision making affecting the company is necessary.