Single Member LLC vs Multi Member LLC Taxes | Real Attorney Explains

Attorney Thomas B. Burton explains the difference between Single Member LLC and Multi Member LLC Taxes and also explains how the number of members you include in your LLC determines how you file your taxes with the IRS when you choose to file as a disregarded entity.
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[@tammywilliams2631]

Thank you. Very easy to understand. You explained this extremely well.

[@BurtonLawLLC]

Thank you for these kind words and thank you for tuning in!

[@stevecox7928]

Thank you for the time you put in to explaining the difference.

[@BurtonLawLLC]

Thank you for this kind feeback, I really appreicate it! Glad it was helpful! Thank you!

[@dryedgetech2853]

Super helpful, thanks for the insights!

[@BurtonLawLLC]

Thanks for this comment and for taking the time to write this here, I really appreciate it! It helps when considering future video topics, to know which topics are resonating with folks!

[@danbaker8490]

Fantastic video thanks! One question: In a multi-member LLC, If I am a non-resident alien owner but the other 2 owners are US citizen residents, and the business is a outsourcing company with no office or employees in the US and all work being done remotely from other countries, do I have to pay taxes on my share of the profits reported in my K1? Thanks :)

[@BurtonLawLLC]

Thank you to everyone for your feedback and comments on this video. I really appreciate the feedback and you letting me know when the information I am presenting is translating well. If you have an idea for a topic related to LLCs you would like me to cover in a future video like this, drop it in the comments. If it is a topic where I feel I have enough knowledge to add something valuable, I will try to make a video on that topic or question and release it in the future. Your feedback helps me when I am coming up with video topics because I only want to make videos that are helpful to people and your questions are the best way for me to find out what you are wondering about. This Single Member vs. Multi Member LLC tax topic is an area that I see is confusing to many of my clients, so that is what inspired me to take the the time to put together a more comprehensive video on this topic. Also, if you found the video helpful, please consider giving it a like so others can see and find the information as well. Thanks for your support!

[@elijahcarlwilliams1808]

Thank you!

[@BurtonLawLLC]

Thank you for tuning in and leaving us this comment!

[@MichaelHowes]

thank you

[@aden313]

Thanks you

[@melhoresprodutos8899]

Nice Video, If i Foreign - ie i live abroad USA then if i have the Multi Member LLC - taxaed how Partnership - for example( Husband and Wife) i ONLY need file the Form 1065 and the K-1 and if the gain this pass for me personal file in 1040NR and do NOT need file the Form 5472,ok?😎

[@patrickwalker4594]

Thank you

[@BurtonLawLLC]

Thank you for tuning in and for your thanks! We really appreciate it!

[@leastrossner.english]

awesome video thanks a lot! would it make sense for a couple to get a multi member Wyoming LLC if we are both (individual) prop firm traders or should each of us get a Wyoming LLC? We are German and Italian, would we need to pay the 15,3% taxes? Thanks so much for your help :)

[@BurtonLawLLC]

Thanks for your positive comments and for tuning in! I am not sure if you are married or not, but it looks like Wyoming is not a community property state, so the special rule for married couples in community property states would likely not apply. Wyoming is a very popular state for LLCs, but I think you should consult with a Wyoming licensed attorney before deciding how to proceed. If you are foreign citizens living in the US, there are likely special tax considerations to consider. As far as liability, each of you having your own LLC might make sense to separate your activities from the assets and liabilities of each other. If you go with a multi-member LLC make sure you have a strong operating agreement that lays out what should happen if you ever decide to separate (how to divide the business etc.) That is my main concern with multi-member LLCs, is if one member wants to leave it can cause problems. So laying out what happens in the Operating Agreement in advance is best practice. Hope this helps and again I think you need a Wyoming licensed attorney to help you with your particular questions.

[@willcollins5660]

Hi Dr. Burton, thanks for the content. If I live and have an LLC in California, but also work and do transactions deals in other states such as New York, Florida, Ohio, Texas and Kansas. Does that mean I need to get an LLC for each of those states as well, a total of 5 more LLC. Or will my California LLC suffice for those 5 states I just mentioned?

[@BurtonLawLLC]

Hey Will, thanks for your question. Check out my video here answering a similar question about when you need to register as a "Foreign LLC" when you are doing business in another state. kzbin.info/www/bejne/gJaxZH-jfKpjr6c You may or may not need to register as a Foreign LLC doing business in those states. I am not licensed in any of those states so it is best for you to consult with an attorney in California and/or one of those states about whether you need to register. It depends on each state's definition of "transacting business" within the state. For example here is the page in Texas about registering as a foreign LLC and when you need to do so www.sos.state.tx.us/corp/foreign_outofstate.shtml Here is a good blog post analyzing what "transacting business" in Texas means.www.settlepou.com/news-blog/detail/do-i-need-to-register-my-out-of-state-business-entity-in-texas Hope this helps and thanks for tuning in !

[@danielleclark]

hi ! great content! Question regarding adding a new member to a single-member LLC... do you need to apply for a new EIN number if a single-member LLC converts to a Multi-Member LLC? Or can you just use the same EIN number and report taxes to the IRS using the appropriate form 1065? Thanks!!

[@BurtonLawLLC]

Hey great question and thanks for tuning in. If you add a member, you are right you will need to report taxes on Form 1065, but you would still be a disregarded entity and taxed as a partnership unless you opted out of this default classification. I do not think you are required to get a new EIN in this situation if the LLC already has one. If for example you were operating as a single member LLC and just using the owner's SSN as the EIN, and had never obtained an EIN before, then I think you would need to obtain an EIN for the LLC if/when you added a second member. Check out the IRS List here of when you are required to get an EIN: www.irs.gov/businesses/small-businesses-self-employed/do-you-need-a-new-ein

[@danielleclark]

@@BurtonLawLLC thanks so much! very helpful, I will share your content :)

[@BurtonLawLLC]

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[@BurtonLawLLC]

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[@sergiobeltran5737]

Thank you! So it sounds like SLLC is way to go in CA for husband and wife small biz!

[@BurtonLawLLC]

Congratulations on your new business and best of luck with your venture!

[@user-fg9zu3hm9n]

Hello! Thanks a lot for your information. I have one question. I've heard that a LLC owned by Foreign Corporation is taxed as a C-corp. And a foreign-owned multi-member LLC is taxed as a partnership. Then, What if the LLC is owned by 2 foreign corporations? Is it taxed as partnership or C-corp?

[@BurtonLawLLC]

Hey thanks for tuning in and for your question. I am not sure about your hypothetical as I have never looked into this exact situation with an LLC owned by two foreign corporations. This article seems to cover a lot of these topics. Maybe check it out and contact a tax professional who specializes in this area if you need further help. drummondadvisors.com/en/2020/11/20/foreign-owned-single-member-llc-and-irs-form-5472/

[@ochicoloto3524]

Nice video. From a tax perspective, is it better to add your spouse as an employee or a partner ?

[@BurtonLawLLC]

Hey, thanks for tuning in and for your question. The answer depends on if you are in a community property state or not. If you live in a community property state, and you meet the IRS requirements, you can have a spouse as the only other member of your LLC and still elect to file like a single member LLC, with flow through taxation (for example on schedule C to your personal tax return). If you are not in a community property state, then adding your spouse as a member will mean you need to follow the process for filing taxes as a multi member LLC, meaning you will need to file a partnership return for the LLC. As far as having them as an employee, this is a tax question to consider with your tax professional after looking at the specific numbers in your business. If you hire a spouse as an employee you will need to comply with payroll tax witholding for their wages. Here is a good overview of things to look at when considering how to own the LLC with a spouse. www.nolo.com/legal-encyclopedia/taxation-llcs-owned-spouses-community-property-states.html Consult with an attorney licensed in your state about the specifics for your situation. Hope this helps!

[@MPG2014]

So you said that as a married couple you could file as a single LLC instead of multiple and have to file partnership taxes. Would it be better to be a multiple LLC though to better protect yourself from an audit from the IRS since disregarded companies are easier targets or ones the IRS like to go after more? Also for either single or multiple llc, do you have to pay both husband and wife a reasonable salary, or can you just pay one and pay the other in just distributions or no payment at all?

[@BurtonLawLLC]

Hey thanks for tuning in and for your thoughtful questions. If you live in a community property state, and the husband and wife are the sole owners of the LLC, then you can elect to have it treated like a single member LLC, and thus a disregarded entity for filing taxes. Check out this IRS article on this topic here: www.irs.gov/businesses/small-businesses-self-employed/single-member-limited-liability-companies Scroll down to "Joint Ownership of LLC by Spouse in Community Property State" and there is information on how it works there. As far as the audit risks, I am not sure about that, so that is something to run by your tax professional and get their opinion on whether that increases your audit risk or not. The reasonable salary, question is also one to direct to your tax professional. If you elect S Corp filing status, then you need to make sure you are paying reasonable salaries to employees of the business, even if they are owners, however if you are taxed as a disregarded entity, then all of the income and expenses flow through to you on your individual tax return, so what you actually take out of the business is an owner's draw, and you are subject to income and self employment tax on the total amount. Hope this helps and thanks for tuning in!

[@trnikeem]

quick question I am a co owner in a 2 person LLC in PA. do we have to file for s corp selection or is it okay to default into the partnership classification

[@BurtonLawLLC]

You do not have to make the S Corp election when you first form your LLC, this is something you can elect to do, but it is not required. You are correct the default tax status as a two member LLC will be taxation as a partnership, unless you elect to be taxed as a corporation. This is from the IRS: "Specifically, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and affirmatively elects to be treated as a corporation." www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc This article has a good overview of the advantages and disadvantages of the S Corp election, there are multiple factors to consider: www.legalzoom.com/articles/can-an-llc-be-taxed-as-an-s-corp There are increased administrative costs as an S Corp and there really is no one size fits all answer on this. The S Corp election is something you would want to discuss with your CPA/Tax professional, as it depends on your specific revenue level and expenses whether it makes sense for your situation. You could also look for some youtube videos by CPAs on this specific topic. Best of luck with your business!

[@scott5880]

Thank you for the helpful content. I recently formed an LLC to handle my consulting income which will start next month. In the set up, I added my wife as an additional member. I am now thinking this may have been a mistake as it will complicate my tax filing requirements for now real gain as I will essentially be the sole operator and would prefer not to have to file the extra partnership returns. We live in Virginia and the LLC was established in Virginia. Was this a critical mistake ? is it recoverable by filing to remove a member or should I just form a new LLC and abandon this one since it has yet to begin business.

[@BurtonLawLLC]

I am not licensed in Virginia, so check with a Virginia attorney on the specifics of your LLC statutes governing how to do this.I do not see Virginia on the IRS list of community property states, so I don't think you qualify for the special rule for married couples in a community property state. www.irs.gov/publications/p555 You should be able to remove her as a member within your operating agreement, or other internal documents, but on the tax side, it depends on if you already filed for an EIN and put down that you have more than one member. If you did, then you will need to let the IRS know you are changing back to a single member LLC. You can use a tax election form to do this. www.irs.gov/pub/irs-pdf/f8832.pdf If you did not get an EIN yet, then you should be okay you would just need to amend your internal documents to show it is a single member LLC. If you do apply for an EIN you would want to accept the default classification as a disregarded entity for a single member LLC to get flow through taxation. Check out this blog post for more. legalbeagle.com/12716373-how-to-report-income-as-an-llc-member.html If you already have the EIN, and when you applied you elected to be taxed as a partnership (for a multi member LLC) then you need to file a form with the IRS to let them know you are changing to a single member LLC and want to be taxed as a disregarded entity. www.irs.gov/pub/irs-pdf/f8832.pdf Hope this helps. Best wishes with your new business!

[@mariamichael4416]

@@BurtonLawLLC 6:56

[@dshana762]

Is it better to stick with the partnership or go the S-Corp route for MM-LLC?

[@BurtonLawLLC]

Hey, thanks for tuning in! An S Corp can help you save on self employment taxes, so if you are active in the business, with an S Corp you can pay yourself a salary (and it needs to be a "reasonable salary" according to IRS rules), and then you can also take some of the profits from the business as a distribution. If you file as an S Corp you will need to file tax returns for a corporation and also do payroll withholding and filings and these usually involve some additional costs, so the "best" choice for you is going to depend on your specific situation and business revenue numbers. Check out this article for more www.nolo.com/legal-encyclopedia/why-you-might-choose-s-corp-taxation-your-llc.html and if you are considering S Corp election I suggest consulting with a qualified tax professional who can run the numbers for you based on each scenario. Hope this helps!

[@jayfortherecord]

I been looking for this answer like crazy. How can I change my multi member back to a single member in Texas.

[@BurtonLawLLC]

I am not sure about Texas as I am not licensed there, but here is a blog post I found on the topic that might be helpful to you. curleybusinesslaw.com/texas-llc-change-of-ownership/

[@jayfortherecord]

@@BurtonLawLLC Thank you so much! Really helpful

[@BurtonLawLLC]

@@jayfortherecord Absolutely, thank you for letting me know and I am glad it helped!

[@jeremythompson0306]

BEN-8 we aren’t US citizens