How to tax an LLC?

I had my LLC set up last week and the paperwork sent to the state, (TN) and my attorney ask how I wanted the LLC to be taxed, I said, I dont. HaHa. She said an LLC has to be taxed as a partnership or an S corp and I as a single member LLC could choose either. Anyone have an opinion? Love the site, Happy Investing

Why a single member LLC? Their protections very rarely survive a creditor attack.

As a single member, your LLC only has two choices for taxation – disregarded entity (sole proprietor) and corporation. If you elect corporation, the default is C-corp. You will have to submit another form to convert from C-corp to S-corp if that is your wish.

By definition, a partnership has two or more partners. Since your LLC only has a single member, your LLC can not be a partnership.

The disregarded entity LLC does not file a tax return, but instead you report everything on your personal 1040 as if the LLC did not exist. The corporate LLC files a tax return in addition to your personal 1040. If you want to make tax reporting simpler, choose the disregarded entity.

You may want to have a conversation with your estate planning attorney to assess which form of taxation best fits with your life situation and asset protection needs.

Why a single member LLC?

You are correct that it won’t survive an attack, but it at least gets the property out of your name. Property in your personal name is like a target on your back…

In my opinion, $200 to throw another hurdle in the path of the ambulance-chasers is worth it. Anything that lowers the chance that you get sued in the first place.


When you say the SM LLC rarely survives a creditor attack, are you referring to external attack where the member is sued, or, an attack upon the LLC from activities from within the LLC?


My attorney is saying that the TX LLC law is among the strongest in the country and that our SC LLC law is modeled on the TX law. If I form single member LLCs in SC should I be less concerned about surviving a creditor attack because our LLC law is the same as the TX LLC law?


I’m talking about an attack from a personal creditor of the single member to liquidate the LLC and also the situation where a creditor of the LLC attempts to reach through the LLC to get to the single member’s personal assets.

I have some concerns about the advice of your attorney. An LLC’s protection comes from the operating agreement, not the statute. A well-drafted OA in a weak LLC state is more likely to provide protection than a poorly drafted one in strong state. Choice of jurisdiction is not really a concern with LLCs.

The vunerability of SM LLC’s is that there is only a single member. The main thrust of an attack, therefore, is to break down the LLC as an “alter ego” of the individual. This is similar to “piercing the veil” of a corporation.

TX specifically addresses the single-member issue by statute, but I’m unaware if it has been tested or breached. BLL may know more…

You avoid this entirely by having a friendly party with a minority (~10%) membership interest.

Once you get past that issue, charging order protection vastly improves your odds of not being sued. No creditor wants to pay tax on LLC income with no guarantee of ever receiving a cash distribution. All of the 13 states or so I’ve filed in follow this charging order model.