How a Single-Member LLC Is Taxed (2026)

By default the IRS treats a domestic single-member LLC (SMLLC) as a disregarded entity. That means the IRS looks straight through the company to its one owner and taxes the business exactly as if it were a sole proprietorship. The LLC itself files no separate federal income tax return by default.

Instead, you report the business profit or loss on Schedule C and attach it to your personal Form 1040. The net profit flows onto your 1040, where it is taxed at your ordinary income tax rate. On top of that income tax, you also owe self-employment tax on the same net earnings. The limited liability protection of the LLC stays fully intact even though the tax treatment mirrors a sole proprietorship, so you get the legal shield without any extra federal return by default.

Self-employment tax is 15.3% of your net business earnings, and it is the single biggest tax surprise for new LLC owners. It funds the same Social Security and Medicare programs that payroll taxes fund for employees. Because you are both the employer and the employee, you pay both halves yourself.

You calculate this on Schedule SE and pay it alongside your income tax. You can deduct half of your self-employment tax as an above-the-line adjustment, which softens the blow slightly. Read the full breakdown on our self-employment tax guide.

No, not by default. A disregarded SMLLC files no separate federal income tax return. All the numbers land on your personal 1040 through Schedule C, so there is only one federal filing for the year. This is the simplest structure the IRS offers and it keeps your compliance burden low.

Two things change that. First, if you elect corporate tax status, the LLC starts filing its own return, Form 1120-S for an S-corp or Form 1120 for a C-corp. Second, a foreign-owned SMLLC has a separate filing duty even while disregarded, which we cover below. Your state may also require an annual report or franchise filing regardless of federal treatment, so always confirm the rules for Wyoming, New Mexico, Delaware, or Nevada.

Yes. The disregarded-entity default is just the starting point, and you can elect a different federal tax classification. There are two elections available to an SMLLC:

• S-corporation: file Form 2553 to have the LLC taxed as an S-corp. You then pay yourself a reasonable salary through payroll and take remaining profit as distributions, which are not subject to the 15.3% self-employment tax. This is the most common way profitable owners cut their tax bill.
• C-corporation: file Form 8832 to be taxed as a C-corp. The LLC pays the flat 21% corporate income tax, and profit distributed as dividends is taxed again at the shareholder level. This suits owners who want to retain earnings inside the company.

An election is a tax choice only. It never changes your legal entity, your liability shield, or your state anonymity. The LLC stays an LLC on every public record.

Elect S-corp status once your net profit is high enough that the payroll-tax savings beat the extra cost of running payroll and filing a corporate return. The savings come from splitting your income into a salary, which carries payroll tax, and distributions, which do not carry self-employment tax.

As a rough guide, owners with steady net profit around $70,000 or more come out ahead after accounting for payroll software, a separate 1120-S filing, and the reasonable-salary requirement the IRS enforces. Below that level, the added complexity is not worth it and the disregarded default is cheaper. Run the numbers before you file, and see our S-corp election guide for the full decision framework and deadlines.

A single-member LLC owner pays themselves through an owner's draw, moving money from the business account to a personal account as needed. The draw is not a salary, carries no payroll withholding, and is not a deductible expense to the LLC, because the disregarded entity and the owner are one taxpayer.

The draw does not change your tax bill. You are taxed on the LLC's net profit whether you leave it in the business or take it out, because a disregarded entity is taxed on what it earns, not on what you withdraw. That changes only after an S-corp election, when part of your pay becomes a W-2 salary. To protect the liability shield, take draws by transfer between clearly separate business and personal accounts, never by paying personal bills straight from the business card.

Keep a separate business bank account, a clean expense ledger, receipts, a mileage log, and copies of every filed return and the EIN letter. A disregarded single-member LLC needs the same bookkeeping discipline as any business, because Schedule C is only as accurate as the records behind it.

Separation is the core habit. Run all business income and spending through the business account so personal and business money never mix, which both simplifies the return and preserves the corporate veil. Track deductible categories as you go rather than reconstructing them in April, and hold records for at least three years, the standard IRS look-back window, or longer for asset and depreciation records. A foreign-owned LLC keeps an extra ledger of every transaction with its owner to support the annual Form 5472.

A foreign-owned SMLLC is still disregarded for income tax, but it carries a mandatory reporting duty that trips up most non-resident founders. Even though the LLC pays no US income tax on income that is not effectively connected to a US trade or business, the IRS requires an information return.

The LLC must file Form 5472 together with a pro forma Form 1120 every year to report transactions between the LLC and its foreign owner. This is an information filing, not an income tax return. The penalty for failing to file, filing late, or filing an incomplete Form 5472 is $25,000, and it applies per return. You need an EIN to file, which every foreign-owned LLC we form obtains as part of the process.

A default SMLLC owner pays three things: federal income tax at your personal rate, self-employment tax of 15.3% on net earnings, and any state income or franchise tax that applies. There is no separate LLC-level federal income tax in the disregarded structure.

You pay these through quarterly estimated tax payments using Form 1040-ES, because no employer is withholding tax from your pay. Missing quarterly payments triggers an underpayment penalty even if you settle the full balance in April. Set aside a meaningful share of each dollar of profit, because the combined income and self-employment tax on business income adds up faster than most first-year owners expect.