A single member LLC is taxed by default as a disregarded entity, meaning the IRS looks past the LLC and taxes all business income directly on the owner’s personal return. You report profits and losses on Schedule C, pay self-employment tax on your net earnings through Schedule SE, and can claim deductions like the 20% qualified business income deduction. If the math favors it, you can elect S-corporation or C-corporation treatment instead.
The Default: Disregarded Entity Treatment
Form a domestic LLC with one owner and don’t file anything else, and the IRS automatically classifies it as a disregarded entity.1eCFR. 26 CFR 301.7701-3 – Classifications of Certain Business Entities The word sounds harsher than it is. It means the IRS treats your LLC’s income, expenses, gains, and losses as yours personally. There’s no separate federal business return. Everything lands on your Form 1040.2Internal Revenue Service. Single Member Limited Liability Companies
The LLC’s legal shield still exists. A business creditor can’t come after your personal house just because the IRS looks through the entity for tax purposes. The disregarded label governs income tax only.
You’ll generally use your Social Security number for income tax reporting, but most owners end up needing an Employer Identification Number anyway. You must have one if you hire employees or owe excise taxes, and most banks require one to open a business account.2Internal Revenue Service. Single Member Limited Liability Companies Applying through the IRS is free.
Reporting Income and Expenses on Schedule C
Schedule C is where you list gross receipts, subtract ordinary and necessary business expenses (rent, supplies, software, insurance, professional services, vehicle costs), and arrive at a net profit or loss. That number flows to your Form 1040 and combines with any other income you have.
Records matter. For travel, you need the amount, dates, destination, and business purpose of each trip. Receipts are required for lodging and for any other business expense of $25 or more.3eCFR. 26 CFR 1.274-5A – Substantiation Requirements Record expenses as you incur them. A year’s worth of expenses reconstructed the week before filing tends to fall apart under audit.
Home Office Deduction
If part of your home is used exclusively and regularly for business, you can deduct a share of housing costs. The simplified method allows $5 per square foot of dedicated workspace, up to 300 square feet, capping out at $1,500.4Internal Revenue Service. Simplified Option for Home Office Deduction The regular method uses actual expenses (mortgage interest, utilities, insurance, depreciation) proportional to the square footage used for business. More paperwork, often a bigger deduction.
Self-Employment Tax
No employer means no one is paying the employer side of Social Security and Medicare for you. You owe both halves. The combined self-employment tax rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare, calculated on Schedule SE.5Internal Revenue Service. Topic No. 554, Self-Employment Tax It applies only if your net earnings are $400 or more.
The tax isn’t calculated on your full net profit. The taxable base is 92.35% of net earnings, which builds in a rough equivalent of the employer-side deduction before the rate applies.5Internal Revenue Service. Topic No. 554, Self-Employment Tax On $100,000 of net profit, the 15.3% runs against $92,350.
The 12.4% Social Security portion only applies to earnings up to $184,500 in 2026.6Social Security Administration. What Is the Current Maximum Amount of Taxable Earnings for Social Security Anything above that ceiling faces only the 2.9% Medicare tax. If your self-employment income tops $200,000 ($250,000 filing jointly), an Additional Medicare Tax of 0.9% attaches to the excess, bringing the Medicare rate on those dollars to 3.8%.7Internal Revenue Service. Topic No. 560, Additional Medicare Tax
One offset most new owners forget: you can deduct half of your self-employment tax as an above-the-line adjustment on Form 1040.5Internal Revenue Service. Topic No. 554, Self-Employment Tax It doesn’t shrink the self-employment tax itself, but it lowers your adjusted gross income, which lowers your income tax. Schedule SE calculates it; Schedule 1 reports it.
Deductions That Lower the Bill
Qualified Business Income Deduction
You can deduct up to 20% of your qualified business income under Section 199A, which was made permanent by legislation signed in July 2025. The deduction runs through Form 8995 or 8995-A and lands on your personal return. Because the LLC is disregarded, the rules that apply to sole proprietors apply to you.8eCFR. 26 CFR 1.199A-1 – Operational Rules
If your total taxable income sits below roughly $197,300 for single filers or $394,600 for joint filers in 2026 (both adjust annually), the math is simple: 20% of qualified business income or 20% of taxable income minus net capital gains, whichever is smaller.8eCFR. 26 CFR 1.199A-1 – Operational Rules Above those thresholds, limits tied to W-2 wages paid and business property value phase in, and specified service trades (consulting, law, accounting, health care, and similar) may see the deduction reduced or wiped out.
Self-Employed Health Insurance Deduction
Premiums you pay for health, dental, or vision coverage can come off your income as an adjustment rather than an itemized deduction. The plan must be established under your business, though the policy can be in your name or the LLC’s, and coverage for a spouse, dependents, and children under age 27 qualifies.9Internal Revenue Service. Instructions for Form 7206 You can’t claim it for any month you were eligible for an employer-subsidized plan through a spouse or another source. And it reduces income tax only, not self-employment tax.
Quarterly Estimated Tax Payments
Without withholding, you pay as you go. If you expect to owe $1,000 or more in federal tax for the year, the IRS wants quarterly estimated payments on Form 1040-ES.10Internal Revenue Service. Estimated Taxes The 2026 deadlines:
- 1st payment: April 15, 2026
- 2nd payment: June 15, 2026
- 3rd payment: September 15, 2026
- 4th payment: January 15, 2027
You can skip the January installment if you file the full 2026 return and pay the balance by February 1, 2027.11Internal Revenue Service. 2026 Form 1040-ES, Estimated Tax for Individuals Missing a deadline triggers an underpayment penalty scaled to how late and how short you were. If tax shown on the return goes unpaid, the failure-to-pay penalty runs 0.5% of the unpaid amount per month, capped at 25%, plus interest.12Internal Revenue Service. Failure to Pay Penalty
Electing S-Corp or C-Corp Treatment
Disregarded status works for most owners, but you’re not stuck with it. Two elections change how the IRS taxes the same business.
S-Corporation Election
File Form 2553 and your LLC is treated as an S corporation. Pass-through taxation stays, but self-employment tax works differently.13Internal Revenue Service. About Form 2553, Election by a Small Business Corporation You become an employee of your own business and must pay yourself a reasonable salary through payroll withholding. Only that salary carries Social Security and Medicare tax. Remaining profits flow to you as distributions free of self-employment tax.
The savings can be real once profits well exceed what you’d reasonably earn as wages. The trap is the salary. Courts have reclassified distributions as wages when owners paid themselves too little or nothing at all.14Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers Reasonable is judged against duties performed, industry comparables, time devoted, and the business’s revenue.
C-Corporation Election
Form 8832 lets your LLC elect C-corporation treatment.15Internal Revenue Service. About Form 8832, Entity Classification Election The business then pays a flat 21% federal income tax on profits, and distributed after-tax profits are taxed again at your individual rate as dividends. That double taxation makes the election unusual for a small single member LLC. It can fit narrow situations: a business retaining significant earnings for growth where the owner’s personal rate runs well above 21%.
Employment and 1099 Obligations
Even though the IRS disregards your LLC for income tax, it treats the LLC as a separate entity for employment and excise taxes. Payroll filings go under the LLC’s EIN, not your Social Security number.2Internal Revenue Service. Single Member Limited Liability Companies
With employees, you file Form 941 each quarter for withheld federal income tax, Social Security, and Medicare.2Internal Revenue Service. Single Member Limited Liability Companies Federal unemployment tax (FUTA) is filed annually on Form 940 at 6.0% of the first $7,000 in each employee’s wages, with a credit of up to 5.4% for state unemployment taxes paid, typically dropping the effective rate to 0.6%.16Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide
Pay an independent contractor $2,000 or more in a year and you file Form 1099-NEC. That threshold rose from $600 for tax years beginning after 2025 and starts inflation-adjusting in 2027.17Internal Revenue Service. 2026 Publication 1099, General Instructions for Certain Information Returns Certain products and services also trigger federal excise taxes, filed under the LLC’s EIN.
State Taxes Are a Separate Layer
Federal disregarded status is only half the picture. Most states follow the federal classification for income tax, so profits flow through to your state individual return in the same way. But many states impose their own charges directly on the LLC entity: annual report or renewal fees ranging from nothing to over $800, and in some states a flat franchise or business privilege tax owed regardless of profit. Missing them can lead to administrative dissolution. Check your state’s secretary of state and department of revenue for the specific filings that apply to your LLC.
Final Filings When You Close or Sell
Shutting down or selling triggers a final round of filings. Your last Schedule C goes with your individual return for the closing year. Sold business property is reported on Form 4797, and a sale of the whole business as a going concern generally requires both you and the buyer to file Form 8594 to allocate the price across asset categories.18Internal Revenue Service. Instructions for Form 4797 (2025) If Section 179 was claimed on equipment and business use falls to 50% or less before the recovery period ends, part of the deduction gets recaptured as income.
Once final returns are filed and balances paid, close the IRS business account with a letter to the Cincinnati service center giving the LLC’s legal name, EIN, address, and reason for closing.19Internal Revenue Service. Closing a Business The account stays open until required returns and balances are settled. Dissolve the LLC with the state too, or annual fees keep accruing on a business that no longer runs.