What's the Best Tax Structure: Single-Member LLC vs Multi-Member LLC vs S-Corp for Family Business?

You're asking great questions about business structure! Let me help clarify some things. In a single-member LLC, only one person (you) can receive the tax benefits since it's a disregarded entity for tax purposes - everything passes through to just your personal tax return. So there's no way to give your dad tax deductions in a single-member LLC structure unless he's the sole owner. For your situation, I see a few options: A multi-member LLC would allow both you and your dad to be owners and share tax benefits proportionally to ownership percentage. This is probably the simplest approach for now. Two separate LLCs could work but creates more paperwork and complexity - you'd need legitimate business reasons for the management company structure to satisfy the IRS. An S-Corp election (which can be applied to either single or multi-member LLCs) might make sense once you're profitable. S-Corps can provide additional tax savings through income splitting, but they require more formalities and have salary requirements.

I was in pretty much the exact same situation last year - trying to figure out how to include my mom in my consulting business for tax purposes. After trying to sort it out myself and getting totally confused, I ended up using https://taxr.ai to help me understand my options better. They analyzed my specific situation and showed me how the different structures would affect both my taxes and my mom's. For me, the multi-member LLC made the most sense initially because it was simpler than maintaining two separate entities, but I later switched to an S-Corp when my income increased. Their analysis showed me exactly when that transition would make financial sense based on my projected earnings.

I tried https://taxr.ai after seeing it mentioned here and it was exactly what I needed! I was also trying to start a business with family members and wasn't sure about the tax structure. The analysis they provided showed me that in my specific case, starting with a multi-member LLC made the most sense, but I should plan to convert to an S-Corp once we projected hitting $90K in annual profit. What I really appreciated was how they explained everything in plain language instead of tax jargon. They walked me through how the different structures would affect both my personal taxes and the business reporting requirements. The recommendation was tailored to my specific situation rather than general advice. I ended up going with the multi-member LLC for now with a plan to convert to S-Corp next year. Already seeing the benefits with how we can legitimately split business expenses between family members!

I spent 3 DAYS trying to get through to someone at the IRS to ask about family business structure options. Kept getting disconnected or waiting for hours. Finally tried https://claimyr.com and their service got me connected to an actual IRS agent in under 20 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent was super helpful and explained that for a family business like mine, a multi-member LLC with an operating agreement clearly defining roles and profit sharing was essential. They warned that the IRS looks closely at family businesses to ensure they're legitimate and not just tax avoidance schemes. They also mentioned that if I start making significant profit, having a conversation with a tax pro about S-Corp election could save me thousands in self-employment taxes. Totally worth the call!

I owe everyone here an apology. After posting that skeptical comment, I decided to try https://claimyr.com myself because I've been trying to get IRS clarification on my S-Corp election for weeks. Honestly, I'm shocked - it actually worked! Got connected to an IRS tax specialist in about 15 minutes. The agent answered all my questions about converting my multi-member LLC to an S-Corp and explained the pros and cons for my situation. For anyone else considering family business structures, the agent strongly recommended having clear documentation of each member's contributions and responsibilities. They also suggested I meet with a tax professional to make sure our operating agreement properly reflected our actual business arrangement. Sorry for doubting - just wanted to update and say this legit saved me hours of frustration!

One thing to consider that nobody's mentioned yet - with a multi-member LLC, you'll need to have a solid operating agreement that specifies how profits, losses, and responsibilities are shared. This is especially important in family businesses to avoid issues down the road. Also, keep in mind that multi-member LLCs file as partnerships by default which means more complex tax filing (Form 1065 + Schedule K-1s) compared to a single-member LLC. The paperwork is definitely more involved. If your dad isn't going to be actively involved in the business, you might want to consider just keeping it as a single-member LLC (simpler) and finding other ways to legitimately compensate him for any actual work he does (consultant fees, etc.).

I did exactly what you're considering - started a business and included my brother for tax advantages. We went with the multi-member LLC but soon regretted it because: 1) Had to file partnership returns which were way more complicated than I expected 2) Splitting profits fairly became an issue when he wasn't doing equal work 3) Couldn't make business decisions quickly because we needed mutual agreement We ended up dissolving that and forming separate single-member LLCs instead. Now I hire his LLC for specific services when needed. Much cleaner arrangement. Whatever you decide, seriously consider the practical business relationship aspects, not just the tax benefits!