Tax Elections for Spouses Who Own a Single-Member LLC
In Arizona, the "single member" of an LLC can be a
married couple whose LLC interest is community property
When it comes to taxation, a single-member LLC is
generally considered a “disregarded” entity that, by default, is taxed as a sole
proprietorship. In most cases, the member of a single-member LLC simply reports
the LLC’s profits or losses on their personal tax return, and the LLC does not
have to file a separate tax return.
In contrast, a multi-member LLC is, by default, taxed as
a partnership and must file an informational tax return to allow the IRS to
confirm that the individual members are correctly reporting their income. The
LLC must also provide each member with a Schedule K-1 that reports their share
of the LLC’s profits and losses for reporting on their personal returns.
Community Property LLC
One exception where a multi-member LLC can be treated as
a disregarded entity and taxed as a sole proprietorship is when the LLC is
wholly owned by spouses as community property. In Revenue Procedure 2002-69, the
Treasury Department and IRS clarify that they will respect a taxpayer’s
treatment of an entity as a disregarded entity or a partnership if it is owned
solely by a husband and wife as community property.
In order to qualify to be treated as a disregarded
The LLC must be wholly owned by a husband and wife as
No person other than one or both the spouses would be
considered an owner for federal tax purposes.
The business is not treated as a corporation under
In some instances, it may be to the couple’s advantage
to have their LLC taxed as an S corporation. That tax treatment requires an
affirmative election by the LLC and acceptance by the IRS.
Spouses who wholly own an LLC should consider the effect
that their LLC’s tax designation will have on their personal tax liability and
their administrative workload. That determination should be made in consultation
with a tax or legal professional.
Formation of an Arizona Limited Liability Company (LLC)
More about Fitzgibbons Law Offices'
Business Law services