Single-member LLC taxes
Written by the filing team at FastBusinessFiling. Reviewed .
By default the IRS treats a single-member LLC as a disregarded entity, which means it doesn't file its own income tax return at all. The profit goes on Schedule C of your personal 1040, exactly where it would have gone as a sole proprietor. On that profit you owe income tax at your normal rate plus self-employment tax at 15.3% — the employer and employee halves of Social Security and Medicare, since you're both — with the Social Security portion applying up to a wage cap that changes each year. Because nobody withholds any of it for you, you pay quarterly estimates. Forming the LLC changed none of this. What can change it is electing S-corp treatment, and that only starts paying once profit comfortably covers running payroll.
The short version
- A single-member LLC files no federal income tax return of its own by default.
- Profit goes on Schedule C. You're taxed on profit, not on what you withdraw.
- Self-employment tax is 15.3% and it's the line that surprises people.
- Quarterly estimated payments are the mechanism. Miss them and there are penalties.
- Money you take out of the business is a draw, not a deductible wage.
Disregarded, and what that word costs you
Disregarded means the IRS looks straight through the company at you. There's no separate federal income tax return, no separate tax rate, and no separate anything. Your accountant may barely notice the LLC exists.
The consequence people find counterintuitive: you're taxed on the business's profit whether or not you took the money out. Leave $40,000 in the business account to fund next year and you're still taxed on $40,000 this year. The account balance is not the tax base.
It also means the LLC does nothing to lower your tax bill. If that's what you were sold, you were sold something the entity doesn't do.
Self-employment tax, the line nobody budgets for
An employee splits Social Security and Medicare with their employer. Self-employed, you're both halves: 15.3% of net profit, made up of 12.4% Social Security up to an annual wage cap and 2.9% Medicare with no cap. Higher earners pick up an additional Medicare surcharge above a threshold.
This sits on top of ordinary income tax, and it's the reason a first-year profit that felt healthy produces a tax bill that doesn't. Half of the self-employment tax is deductible against income tax, which softens it, and doesn't remove it.
There's also a deduction for qualified business income available to many pass-through owners. It's real and it's worth asking about, and the rules around it have been legislated more than once, so the current position is a question for your CPA rather than for a filing service's guide.
Quarterly estimates
No employer is withholding anything, so the IRS wants payments through the year rather than one settlement in April. Estimates are generally due in April, June, September and January.
Underpay and you owe a penalty even if you settle in full at filing. The safe-harbour rules — paying a set percentage of last year's tax, or of this year's — are how most people avoid it, and the percentages depend on your income level.
The practical habit that works: move a fixed percentage of every payment received into a separate savings account the day it lands, and pay the estimates out of that. Owners who do this are calm in April, and owners who intend to do it later are not.
State tax is a second, unrelated question
Federal treatment doesn't bind the states. Some states impose a franchise tax or an annual minimum on LLCs regardless of profit, some levy an entity-level fee based on gross receipts, and a few treat LLCs quite differently from the federal default.
That's why an LLC in one state can cost meaningfully more per year to keep alive than the same LLC next door, and it's worth knowing before you choose where to form rather than after.
When the S-corp election starts to make sense
Electing S-corp treatment doesn't change your entity; it changes how the IRS taxes it. You become an employee of your own company, pay yourself a reasonable salary subject to payroll taxes, and take the remaining profit as a distribution that isn't subject to self-employment tax. That gap is the entire saving.
It costs something to run: actual payroll with actual filings, a separate business return, and usually an accountant, which together run to hundreds or low thousands a year. So the election pays once the self-employment tax saved exceeds that overhead, which for most single-owner service businesses means profit somewhere in the five figures rather than at the first dollar.
"Reasonable salary" is the part that gets abused and audited. Paying yourself an implausibly small wage to shift everything into distributions is the well-known failure mode, and it's well known to the IRS too.
Common questions
Not federally by default — the profit goes on your Schedule C. Some states still want a separate state-level return or an annual entity filing regardless.
Not as a disregarded single-member LLC. Money you take out is an owner's draw, it isn't a deductible expense, and it doesn't change your tax. Salary becomes possible after an S-corp election, which is exactly the point of making one.
Ordinary and necessary business expenses — the standard categories, plus home office and mileage where you qualify. What makes deductions survive scrutiny is a business bank account and records, which is another reason to keep the money separate.
For a simple first year with modest profit, competent software gets many people through. The moment an S-corp election, employees, multiple states or inventory enters the picture, an accountant costs less than the mistakes.
You generally still report the activity, and a loss may be usable against other income. State annual reports and minimum fees are usually due regardless of whether you earned anything.
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FastBusinessFiling is a document filing service operated by Fast Filing Group LLC. We are not a law firm or an accounting firm, and nothing here is legal or tax advice. Rules and fees change; where this page states a figure, it carries the date it was checked. For advice about your own situation, talk to a licensed attorney or CPA.