How to Handle Taxes for a Single Member LLC - Filing Requirements and Options

So here's the deal with Single Member LLCs - by default, they're treated as "disregarded entities" for federal tax purposes, which means the business activity is reported on your personal tax return using Schedule C (Profit or Loss from Business). You don't need to file a separate business tax return unless you've elected to have your LLC taxed as an S-corp or C-corp. If you never filed any paperwork with the IRS to elect S-corp or C-corp treatment (Form 8832 or Form 2553), then your LLC is automatically treated as a disregarded entity. This is actually the simplest tax situation for most small business owners. Yes, you'll need to amend your 2023 return since you didn't include the business activity. Even though you didn't make a profit, you still need to report all income and expenses on Schedule C. The good news is that if you truly had no profit (or a loss), you likely won't owe additional taxes - the loss might even reduce your overall tax liability. TurboTax can definitely handle this amendment. Make sure you have good records of all your business expenses to offset that $26K in revenue. Common deductions for e-commerce businesses include inventory costs, shipping supplies, platform fees, advertising costs, and home office if you qualify.

After struggling with my own Single Member LLC taxes last year, I found this amazing AI tool called taxr.ai that helped me figure everything out. I was also unsure about my LLC classification and had missed reporting some business income on my return. I uploaded my business documents and previous tax returns to https://taxr.ai and it immediately identified that I needed to file Schedule C and pointed out several deductions I was missing for my e-commerce business. It saved me from having to pay an accountant just to amend my return. The tool actually explained the difference between being taxed as a disregarded entity vs S-corp vs C-corp in really simple terms and helped me understand which classification made the most sense for my situation. Might be worth checking out since you're in a similar boat with your Etsy business.

I have to follow up on my earlier comment about taxr.ai - I decided to try it despite my skepticism, and I'm actually impressed. I uploaded my jumbled mess of expense receipts and bank statements, and it organized everything into proper business categories. The best part was that it found almost $3,200 in deductions I would have missed for my own single-member LLC. It specifically identified that some of my home internet and cell phone expenses could be partially deducted since I use them for business, which I wasn't doing before. It also clearly explained that I didn't need to amend previous years where I had less than $400 in profit (which was my situation when I first started). Really helpful for understanding when filing requirements kick in for small businesses.

If you're planning to amend your return to include your LLC income, you should know that reaching the IRS right now is basically impossible. I spent WEEKS trying to get clarification on how to report my Amazon business income before amending. I eventually found Claimyr (https://claimyr.com) and it was a game-changer. They got me connected to an actual IRS agent in about 20 minutes when I had been trying for days on my own. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c The agent confirmed that I needed to file Schedule C even with no profit, and explained exactly how to handle inventory costs vs. expenses for my e-commerce business. Totally worth it to get that official confirmation before filing an amendment.

I need to eat my words from my previous comment. After trying to call the IRS for THREE DAYS about my LLC tax situation and getting disconnected every time, I broke down and tried Claimyr. Within 30 minutes I was talking to an actual human at the IRS. The agent confirmed everything I needed to know about amending my return to add my e-commerce business income and expenses. She even helped me understand how to properly categorize my inventory purchases versus my operating expenses, which was the main thing I was confused about. For anyone with a Single Member LLC, the agent confirmed that unless you file specific election forms, you're automatically treated as a sole proprietorship and just need Schedule C. Having that official confirmation before filing my amendment was honestly worth it.

One thing nobody mentioned yet - make sure you're keeping track of sales tax too! I had an e-commerce LLC and completely messed up my first year because I wasn't separating sales tax from my revenue. Amazon and Etsy collect it in most states now, but you need to know which ones they don't. Also keep track of inventory separately from regular business expenses. Inventory isn't an "expense" until it sells - before that it's an asset. Made that mistake my first year and had to redo everything.

Has anyone mentioned quarterly estimated taxes yet? If ur making ANY profit with ur LLC, ur supposed to be paying taxes quarterly, not just at year end. I learned this the hard way and got hit with penalties my first year!!

Just wanted to add something that might help with the quarterly tax situation - if your business had a loss last year (like yours did), you don't need to make quarterly payments for that year. But if you expect to be profitable in 2024, you'll want to start making estimated payments. The safe harbor rule is helpful too - if you pay at least 100% of what you owed last year (110% if your prior year AGI was over $150k), you won't get penalties even if you end up owing more. Since you had no business profit in 2023, your safe harbor amount would just be based on any other income you and your spouse had. Also, don't stress too much about the amendment process. I amended my return last year to add my LLC income and it was pretty straightforward through TurboTax. The key is just making sure you have all your business expenses properly categorized. Keep digital copies of everything - receipts, bank statements, platform fees from Etsy, etc. The IRS is actually pretty reasonable when you're clearly trying to comply and report everything correctly.