| The limited liability company, better known as an | | | | before passing legislation allowing a single person |
| LLC, is a favorite business entity among small | | | | to own all the interest in an LLC. The problem |
| businesses because of the incredible flexibility | | | | arises with the pass through nature of the LLC. It |
| involved in running it and the simplicity of the tax | | | | is based on the fact the LLC can choose to be |
| situation that arises. Well, that is unless you are | | | | taxed as an LLC. To be a partnership, however, |
| the sole owner of the membership interest in the | | | | you must have two or more persons doing |
| company. | | | | business. Since there is only one, the IRS |
| You’ve been making stained glass for years. | | | | considers this form of LLC to be a |
| Over that time, you’ve advanced from | | | | “disregarded entity” for tax purposes and |
| making works of “art” that are crimes | | | | requires the single owner to report all the taxes |
| against nature to the point where your work is | | | | on their Schedule C as though they were a sole |
| church worthy. And people are telling you about it! | | | | proprietor. |
| Given this, you decide to make a business out of | | | | The single member LLC is actually a great little |
| it and form an LLC. The first year goes well and | | | | entity for business purposes. The small business |
| you make a nice profit. You file taxes [complaining | | | | owner usually has to spend most of their time |
| like a good American!]. Three months later, you | | | | keeping the business up and running. The ability to |
| get a notice from the IRS rejecting your tax | | | | avoid the corporate formalities of a corporation is |
| returns! | | | | definitely a positive benefit, but only if you |
| Okay, so what happened? The answer is found in | | | | understand what you are getting into from a tax |
| the fact the states failed to confer with the IRS | | | | purpose and can plan for it. |