So I set up an LLC for my freelance design work last year, thinking it would save me on taxes. Just found out from a friend that by default it's a disregarded entity and I'm supposed to file everything on my personal return anyway. Did I mess up? I've been treating it like a separate business this whole time.
LLC taxes
I didn't realize my LLC could be disregarded for tax purposes
You're fine, just file a Schedule C with your 1040. Single-member LLCs are disregarded by default, so you don't need a separate business return unless you elect S-corp or something.
Did you open a separate bank account?If so, you're already ahead of half the people who ask this question.
What does 'treating it like a separate business' mean exactly? Did you file a separate 1120 or something? Because that would be a problem.
No, I didn't file anything yet. I just meant I've bene keeping separate books and paying myself 'distributions.' So I haven't filed wrong, just maybe misunderstood how it works.
Then you're totally fine. Just report the profit on Schedule C. The 'distributions' are just your own money moving around, not a deductible expense.
lol I did the same thing my first year. Thought I needed to file a 1065. Accountant laughed at me. You live and Learn.
Actually, depending on your state, you might still need to file an annual report or pay a franchise tax. Disregarded for federal doesn't always mean ignored everywhere.
Good point. What state are you in, OP? Some states treat single-member LLCs differently.
I'm in Oregon. I did pay the annual LLC fee already.
You're probably fine then. Just make sure you're not deducting 'owner draws' as business expenses. That's the only real trap.
Also, if you ever want to elect S-corp status later, you'll need to file Form 2553. But for now, disregarded is the simplest.
Wait, so if I have an LLC and I'm the only member, I don't need an EIN? I thought I did.
You might need an EIN for banking or hiring, but you can also just just use your SSN. It's not strictly required for a disregarded entity unless you have employees or excise tax.
This thread is making me realize how many people don't know this. It's like the default setting that nobody explains.
Thanks everyone. Feeling much less panicked. I'll just file Schedule C and keep my books separate. Appreciate the help.
One last thing—check if your city or county requires a business license. Those can sneak sneak up on you.