Tax Classifications

• Not deemed to have its own classification for tax purposes, an LLC must file as either a corporation, partnership or sole proprietorship on the yearly tax return. For LLCs that are not automatically classified as a corporation, the IRS Form 8832 can be used to elect or change the business-entity classification. Single-member LLCs can elect to be classified as either a corporation or disregarded as an entity separate from its owner. LLCs with two members or more can choose to elect a classification of either a corporation or a partnership.
  
  

Members

• Business owners who conduct their operations under a limited-liability company are considered members of the LLC. Most states do not restrict ownership and membership can include individuals, corporations, other LLCs or foreign entities. Banks and insurance companies, however, are excluded from being an LLC.
  
  

Employer Identification Number

• LLCs that have employees need to file form SS-4 Application for Employer Identification Number (EIN). The EIN can also be used to open bank accounts and will be used for federal and state filing purposes. Single-member LLCs that will not have employees do not need an EIN unless they wish to open a bank account under an LLC's name. If a single-owner LLC does intend to have employees, the owner and the LLC will need separate EINs.
  
  

Employment Taxes

• The owner of a single-member limited-liability company (SMLLC) who elects to file as a disregarded entity rather than a corporation stills remains responsible for collecting, reporting and paying the employment taxes. Disregarded-entity SMLLCs have an option when reporting and paying employment taxes: using the name and employer identification number assigned to the LLC or the name and employer identification number of the single-member owner.
  
  

Possible Repercussions

• If LLCs fail to file Form 8832 to elect their classification, the company will be automatically classified as a partnership and will be forced to file a partnership return. Single-member LLCs that fail to elect classification will be classified as a disregarded entity, which requires the member to file as a sole proprietorship. For those LLCs that do file Form 8832 and elect their classification, tax implications may arise resulting in taxable gains and possibly affecting employment tax wage bases.