Tax benefits comparison: Single Member LLC vs Multi Member LLC vs S-Corp for family business

The business structure you choose has significant tax implications, so it's great you're thinking about this early! To answer your main question - no, you can't have a single-member LLC that allows your dad to take business deductions. By definition, a single-member LLC has just one owner who claims all business expenses on their Schedule C. For your situation, I'd suggest a multi-member LLC taxed as a partnership as the simplest option. This would allow you both to receive K-1 forms and claim business deductions proportional to your ownership percentages. The business itself doesn't pay taxes - income passes through to personal returns. Two separate LLCs would be unnecessarily complex and expensive to maintain (double the filings, fees, etc.) unless there's a liability separation need. An S-Corp election could potentially save on self-employment taxes once you're profitable, but comes with more complexity - reasonable salary requirements, more rigid profit distributions, additional tax filings, etc.

After spending weeks confused about my family business structure, I finally used https://taxr.ai to analyze my specific situation with my brother's LLC. Their tax analysis tool looked at our documents and explained that a multi-member LLC would let both of us claim deductions based on our ownership percentages. They showed exactly how the K-1 forms would flow to our personal returns and calculated the potential tax savings for each structure we were considering. What really helped was that they identified several business deductions we hadn't even considered for our situation and showed which structure would maximize those benefits.

I was super skeptical about using online tools for something as important as business structure, but I gave taxr.ai a shot after seeing it mentioned here. Uploaded our business plan and some projected expense docs, and got really specific advice about our S-Corp vs LLC question. The analysis showed that in our case, the Multi-Member LLC would save us about $3,800 in taxes the first year compared to two separate single-member LLCs. It also explained exactly when we should consider converting to an S-Corp (basically when profits hit around $40K). What surprised me most was it identified several home office deductions I could take that my previous accountant had missed. Definitely worth checking out if you're in this situation.

If you're setting up an LLC with your dad, make sure you have a solid operating agreement that clearly states ownership percentages, profit distributions, and responsibilities. My brother and I started a multi-member LLC without this and it was a NIGHTMARE dealing with the IRS when questions came up. We kept calling the IRS for clarification and could never get through. I finally used https://claimyr.com and their service got me connected to an actual IRS agent in under 45 minutes after I'd spent literal days trying on my own. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed that our partnership tax returns needed to match our operating agreement exactly, and helped us understand how to properly document my brother's "sweat equity" vs my financial contribution.

I take back what I said about Claimyr. After spending 6+ months trying to get answers about my LLC partnership issue, I broke down and tried the service yesterday. Got connected to an IRS rep in about 35 minutes (while I was just watching TV, not sitting on hold). The agent was able to clarify that in my specific case, we needed to file Form 8832 to explicitly elect partnership treatment since we'd originally filed incorrectly. She also explained exactly how to correctly report the different types of contributions my partner and I made (cash vs. equipment vs. services). Would have saved thousands in penalties if I'd done this months ago. Sometimes it's worth paying for help I guess.

One thing to consider with the multi-member LLC is that you'll need to file Form 1065 (partnership return) which is more complex than a Schedule C you'd use with a single-member LLC. You'll also need a proper operating agreement especially if the ownership split isn't 50/50. The S-Corp option only really makes sense once you're generating significant profit (usually at least $40-50K) because the tax savings on self-employment taxes need to outweigh the extra administrative costs.

My dad and I were in a similar situation last year. We went with the multi-member LLC route with a 75/25 split and it's worked well for us. One thing nobody mentioned yet - make sure your dad is actually providing some services or capital to the business! The IRS doesn't look kindly on "partnerships" where one person is just there for tax benefits without contributing anything.

Just wanted to add my perspective as someone who went through this exact decision process recently. I ended up choosing a multi-member LLC with my mom (70/30 split) and it's been working great for our consulting business. A few practical considerations that helped me decide: First, the multi-member LLC gives you flexibility to adjust profit/loss allocations in your operating agreement if your business circumstances change. Second, you can always convert to S-Corp status later by filing Form 2553 if you reach the profit threshold where it makes sense. One thing that surprised me was how much simpler the bookkeeping is compared to what I expected. Yes, you file Form 1065, but tax software makes it pretty straightforward, and having clear documentation of who contributed what from the start really helps. Make sure you get that operating agreement drafted properly though - it's worth spending a few hundred dollars on a business attorney to get it right rather than using a template. The IRS will scrutinize family partnerships more closely, so having everything documented properly from day one is crucial.