A single-member LLC sounds straightforward: It’s an LLC owned by just one person. However, there are situations when a married couple can form a single-member LLC. But to do so, you must live in a community property state. You must also be OK with filing a joint tax return. Let’s take a closer look at how to form a single-member LLC as a married couple.
Community Property States and Single-Member LLCs
If you hear someone talking about a “community property state,” it’s often in the context of divorce. For instance a friend might tell you that since they live in a community property state, their ex-spouse gets half of the house. In these states, property acquired by either spouse during the marriage is legally considered joint property of the couple (unless they have a pre-nuptial agreement that says otherwise).
The “each partner gets 50 percent” rule makes it possible for married couples to form single-member LLCs if they’re living in a community property state. The other 41 states use common law, which allows spouses to acquire and own property individually. So, if you’re not in a community property state, you can’t form a single-member LLC as a married couple.
In case you don’t have the community property states memorized, they’re as follows:
- New Mexico
The community property designation only applies to assets acquired during the marriage. So if you form an LLC six months before your wedding, it’s not community property. If you form one the week after the wedding, it is. You could even form an LLC at the reception and bam, it’s considered community property. Not that we’re suggesting that, since most guests would prefer to eat cake and dance at the reception, not watch a couple fill out LLC paperwork.
One more note: community property doesn’t apply to gifts or inheritances. So if two people get married and one of them inherits a million dollars a year later, that money is not typically considered community property. A qualified attorney can walk you through more specifics of how the rules apply in your state.
What if my spouse and I don’t live in a community property state but want to form an LLC together?
You can do that, but you will have to form a multi-member LLC, which means you’ll get taxed as a partnership. You’ll need to create a multi-member LLC operating agreement and agree on what percentage of membership interest each spouse will own. If you decide to share the LLC equally, you’ll each get 50% membership interest.
How to Form a Married Couple Single-Member LLC
OK, so you and your spouse live in a community property state. You want to run an LLC and you’ve decided you want to be considered a single-member LLC at tax time. There are a few other steps you must take to form an LLC, including designating a registered agent. But if you’re forming a single-member LLC as a married couple, pay special attention to the below items.
1. LLC Articles of Organization
Both partners’ names should go on the articles of organization, even though you’re forming a single-member LLC.
Note: If you form your LLC with Northwest, we’ll ask for an email confirming you want both spouses’ names on the articles of organization.
2. Operating Agreement
Draft a single-member LLC operating agreement and list both you and your spouse as members. If you and your spouse have the same last name, write your names as “Susie and Dan Smith,” not “Susie Smith and Dan Smith.” This emphasizes that you’re forming the LLC as a unit rather than as individuals.
3. IRS Tax Requirements
To file taxes as a married couple with a single-member LLC, the IRS requires you to meet the following requirements:
- You and your spouse must be the only members of the LLC.
- Both spouses must participate in the business.
- Both spouses must opt to be taxed as a disregarded entity rather than a partnership.
Want some help forming your LLC? Sign up for a free account with Northwest to access every form you’ll need to register and maintain an LLC in any state, plus step-by-step instructions for how to do it. Or, you can hire Northwest to form your LLC for you.
Benefits of Filing as a Single-Member LLC
There are two main benefits for married couples filing as a single-member LLC: easier tax filing and credit for self-employment taxes.
A single-member LLC is appealing in its simplicity: Because there’s only one member, the LLC gets taxed as a disregarded entity. That’s a less complicated tax situation than multi-member LLCs, which get taxed as partnerships and require more paperwork. In a partnership, each partner must file their own Form 1065 and Form 1040, as well as issue a Schedule K-1 1065 to themselves. In a single-member LLC, they can file a joint Form 1040 plus separate Schedule C and Schedule SE 1040s.
A married couple that files taxes as a single-member LLC also sees another advantage: double the credit for self-employment taxes. Since partnership taxes are more complex than sole proprietor taxes, many married couples who form an LLC together only list one spouse as the owner. However, in that case, only one spouse pays self-employment taxes and gets credit toward Social Security and Medicare when they retire. In a single-member LLC with both spouses listed as owners, both contribute individually to Social Security and Medicare, which means that both partners will receive credit for Social Security and Medicare benefits.
LLCs vs. Qualified Joint Ventures
A married couple single-member LLC is similar to a qualified joint venture (QJV)—an unincorporated business owned by a married couple that files taxes as a sole proprietorship—in that both business types are taxed as disregarded entities. However, a qualified joint venture is a tax designation, not a legal entity, so having a qualified joint venture that isn’t incorporated doesn’t provide you with the asset protection that you get with an LLC.
With a qualified joint venture, there’s no separation between your personal assets and business assets. In the eyes of the law, you and your spouse are your business. In contrast, an LLC is a separate legal entity from its owners, so it provides liability protection in case the business faces a lawsuit or defaults on a debt.That way, if someone sues your LLC, they can go after your business assets but not your personal assets. But with an unincorporated QJV, you risk losing things like your house or car if your business gets sued.