The IRS Audit Blog

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

Question: Can an LLC file for a tax ID as a sole proprietor?

I filed as an LLC even though it’s only me working at my business. My friend (who is a lawyer) told me I could get taxed as a sole proprietor anyway, but when I went to file for the number on irs.gov it said:

A sole proprietorship is a business that has only one owner and is not incorporated or registered with the state as a limited liability company (LLC). A sole proprietor can be a self-employed individual or an independent contractor. Sole proprietors (self-employed individuals) report all business income and expenses on their individual tax returns (Form 1040, U.S. Individual Income Tax Return, Schedule C, E, or F). A sole proprietor may or may not have employees.

I’m confused! Is there a way to be taxed as a sole proprietor since I have no employees, even though I filed as an LLC?

Answer: The answer to your question is “Yes”. It is possible to be taxed as a sole proprietor even though you have no employees and are doing business as a LLC.

First, it is not necessary to have employees in order to be a sole proprietor. If you are engaged in a business (meaning you have earned income that is not subject to withholding as an employee), and you are not operating the business as a legal entity such as a corporation or LLC, then the tax law says that you are a sole proprietor.

A sole proprietorship is not a LLC, but in some cases, a LLC can be treated as a sole proprietorship for tax purposes. The IRS explanation was simply defining a sole proprietorship by saying it not a legal entity like a corporation or LLC.

A U.S. based single owner LLC is disregarded by the tax laws, which means that any business income will be reported on Form 1040, Schedule C if the owner is an individual. That’s the same schedule that is used by a sole proprietor. Investment income will be reported on the tax return of the LLC owner the same as if the LLC did not exist. For all other purposes, the LLC is a legal entity with an identity separate from its owner.

If an LLC has more than one member, it will be treated as a partnership for U.S. tax purposes. For those who have an LLC in another country, the U.S. tax law will treat it as a foreign corporation unless the owner makes an election to treat the foreign LLC as a disregarded entity (one owner) or as a foreign partnership (multiple owners).

Tax assistance program available

The IRS Volunteer Income Tax Assistance program is available once again, beginning at 9 a.m. on Saturdays starting this week through March 27 at the Leavenworth Public Library.

Tax Tips from the IRS – PIN to be required for electronic filing

Related posts

• Tax IRS Forms
• IRS.gov Tax Forms
• IRS State Tax Forms
• IRS 2009 Tax Forms
• IRS 2008 Tax Forms And Publications
• IRS 2008 Tax Forms
• IRS 2007 Tax Forms