Should I include my spouse as an owner of my LLC?
Tax Implications
A single-member LLC is considered a disregarded entity. In other words, a federal tax return for the LLC is not required. Instead, the LLC’s profits (or losses) are included on the owner’s tax return. The LLC's owner will generally pay income tax on the LLC's profits the same way a sole proprietorship would pay income tax on its profits.
A multi-member LLC is taxed like a partnership. Therefore, the LLC must file a federal tax return (IRS Form 1065). If partnership taxation is your desire, you can accomplish this by adding your spouse as an owner of the LLC.
An LLC can also elect to be taxed like a corporation (S-corp or C-Corp) whether your spouse is an owner or not. Read more about LLC taxation.
Liability Implications
Management Implications
From a management perspective, a multi-member LLC generally requires input from both owners. When the LLC takes action, it should be documented that the owners authorized it. With a multi-member LLC, the documentation becomes even more important.
If one spouse wants to make all of the business decisions (and both spouses desire to own the LLC), the LLC can elect to be manager-managed and governed by a sole "manager."
Implications on Distributions of Profit
Company Agreement Implications
When is a single-member LLC better than a multi-member LLC?
The single-member LLC is the better choice when:
- the business owner does not want to share profits with partners (profits must be distributed to each owner typically in proportion to their ownership percentage).
- the business owner does not want to consult with a partner when making decisions or before taking an LLC action.
- the business owner wants the operating agreement to be simple. Many multi-member concepts (i.e., what happens if the members disagree) do not need to be addressed in a single-member LLC operating agreement.
- the business owner wants to be taxed like a single-member LLC (disregarded entity) and plans to move outside of Texas (to a non-community property state).
Zachary Copp, Esq.
Comments 26
So, if I set up the LLC in the name of both husband and wife, I will have the option of electing tax treatment (as disregarded entity or partnership) in Texas?
Author
That is correct. In community property states like Texas, an LLC owned solely by a married couple can elect to be taxed like a single-member LLC (i.e., a disregarded entity). Alternatively, the LLC can stick with the standard tax classification for a multi-member LLC (i.e., partnership).
How would you go about a multi-member LLC, that is currently husband and wife, but you want to add an additional member? So ideally 3 members: two are husband and wife, the other is an investor. Thanks.
Author
From a tax standpoint, disregarded entity status (aka single-member LLC taxation) would no longer be an option if you added a third member. If you are dead set on adding a third member (rather than structuring the investment as a loan), you will need to do all kinds of things. One task, as an example, would be to have all three members sign an amended Company Agreement (or have the new member ratify the existing Company Agreement). Read more about transferring a portion of an LLC interest.
So what if the wife is the only member and the husband is a manager? Is he now considered a contractor or employee?
Author
The manager is not considered an employee (or contractor) simply by serving as the manager.
When I applied for the EIN # I put that there were 2 members even though it is just my husband and me; we want to be classified as a SMLLC. So would I file a 8832 form to classify as a disregarded entity but say there is only one member, my husband, since he is the first one listed on out joint tax return?
Author
If there are only two owners, the online EIN Application will ask if the two owners are married to each other and then give you the option to select single-member or multi-member taxation. So, before filing IRS Form 8832, take a look at your EIN Assignment Letter and see if it says “Sole Mbr” or just “Mbr” after the responsible party’s name. If the EIN Assignment says “Sole Mbr” you would not need to file Form 8832 to change to SMLLC taxation. If it says “Mbr” after the responsible party’s name, you’ll want to speak with a tax professional to see if changing to SMLLC taxation would be the best option.
My fiance and I want to start an LLC soon. Once we file the LLC, will we need to go back and change it once we’re married? Also, I have the certificate of formation, under governing authority, what should I check regarding managers? There are only 2 members of our business. Should I check that the company initially has managers or it doesn’t? This confuses me. Thank you for sharing the information by the way. I’m trying to learn so much in such a short amount of time.
Author
You don’t have to go back and change anything once you are married. If one of the members changes their last name, you can update the state when you file the public information report (PIR) that is due each year by May 15th.
The governing authority article of the Certificate of Formation is where you decide if the LLC will be governed by its members (owners) or by managers. The managers of an LLC are a lot like the directors of a corporation. If the LLC is member-managed, you would list all of the initial members in the governing authority article of the Certificate of Formation. If the LLC is manager-managed, you would list only the managers. So, if both of you are going to be decision-makers, you can be either member-managed or managed-managed and you would list both of you as governing persons. If only one of you will govern/control the business, you will likely want to be manager-managed and list the controlling spouse and the sole manager.
So, in Texas, should we list both husband and wife as an “Initial Governing Person”, then check the “Sole Member” box when applying or our EIN? I want to be CERTAIN that we are filing correctly and will be considered a SMLLC.
OR, should I only list my husband, but I can still run the business for him? This is all so confusing, and we need to file asap. Thank you.
Author
There are really two issues that need to be resolved. The first relates to the way you report LLC profits to the IRS, and the second is how the LLC will be governed.
An LLC owned by just one person (a single-member LLC) is considered a “disregarded entity” by the IRS, and the LLC’s profits are reported on a schedule of the owner’s personal federal tax return (similar to how a sole proprietorship would report profits to the IRS).
An LLC owned by more than one person is traditionally taxed like a partnership, and thus a separate partnership tax return (IRS Form 1065) is filed before March 15th each year for the business. The partnership will issue a K-1 to each partner, informing them how much of the business profits they need to include on their personal tax return. However, there is an exception:
An LLC that is (1) owned by two members (2) who are married to each other (3) who live in a community property state (like Texas) and (4) who file taxes jointly has the option to be taxed like a single-member LLC (aka disregarded entity) rather than a partnership.
So, if you meet the requirements above, you and your husband can both be members (owners) of the LLC and you can still be treated as a SMLLC. In other words, your desire to be taxed like a SMLLC is viable under either scenario and thus should not be a driving factor. If you wanted the LLC to be taxed like a partnership, then including both spouses as members would be necessary.
As for governance of the LLC, an LLC can be governed by (a) owners/members or (b) one or more “managers” (who often are, but do not need to be members). So, you and/or your husband could be the owners and then you could be the sole manager (i.e. decision maker). In a manager-managed LLC, you only list managers in the Certificate of Formation under the Article about the Initial Governing Persons. Alternatively, your husband could be the sole member/manager and then appoint you as an officer (i.e., president) to run the day-to-day affairs of the business.
If the exception applies to the business because ‘the LLC is only owned by two members, who are married to each other in a community property state, and file jointly’ and they can elect to be taxed like a single-member LLC (aka disregarded entity) rather than a partnership return (Form 1065) would they each file a Schedule C splitting the income and deductions 50/50?
Author
I believe that is how the federal return is handled, but I would defer to the tax professional on the specifics.
hi, im married and my husband and i normally file our taxes together but i want to start an llc alone,(without him) how will i go about this? especially when i want to apply for an ein
Author
A single-member LLC is considered a disregarded entity and the profits of the LLC will be reported on the owner’s personal tax return. You’ll want to speak with a tax professional on whether or not it would make sense to file your taxes (a) married filing jointly or (b) married filing separately.
When we filed for the EIN in 2019, it was just under my wife as a LLC. for the past several years we have just filed taxes under her name on a Schedule C. This year we want to split up the business to 50-50 among her and me (husband) Do I need to sent the IRS anything? My understanding is we would just split up the Schedule C under name and one under my name and split everything 50-5o income, deductions, etc.
Author
Once the LLC has multiple members, you can inform the IRS that the LLC will be taxed like a multi-member LLC (i.e., partnership), but most husband and wife owned LLCs will opt for single-member LLC taxation and report profits on Schedule C rather than a separate partnership tax return.
I currently am a single member LLC in Ohio. I am just getting things started and attending networking events. Eventually, my husband will work with me. I will be the main person that makes business decisions. I am wondering what the best way is to handle him attending networking events and such to get him experience while we are getting things started. He has never been in a job where he has the ability to attend such events and I need him to get accustomed and understand the process. So, do I need to add him as an employee, a contractor, a partner or nothing for now? Thanks in advance for your expertise opinion.
Author
If your husband is simply attending networking events with you, there is no need to add him as an employee, contractor, or partner.
I live in Texas, if my wife and I own a LLC as a smLLC and want to file as a S Corp, does that fall under a partnership or would we still only consider ourselves as 1 employee to the LLC?
Author
A multi-member LLC is generally taxed like a partnership. If, however, the LLC is owned by only 2 members, who are married to each other, and they reside in a community property state like Texas, the LLC can elect to be taxed like a single-member LLC (aka disregarded entity). It sounds like you’d prefer to elect to be taxed like a S-Corp rather than a disregarded entity (or partnership). Once you elect S-Corp taxation, the LLC can pay one or both of the members a salary (you would not, to my knowledge, be able to treat the two members as 1 employee).
If a wife owns a smllc in a community property state and decides to add spouse to smllc mid year (and he now materially participates in the business, is it still half the income/expenses on each schedule C? Or would the date he was added makena difference?
Author
Holly, thanks for reaching out! I would reach out to a CPA/tax professional to get an answer to this question.
Hello.
If I am married in Texas and I will tax LLC as S corp. Can I still apply for the EIN as SMLLC if bout spouse will be actively working in the business 50/50.
Author
When you apply for the EIN, you will have the option to select with single-member LLC (disregarded entity) or multi-member LLC (partnership) taxation since the LLC is owned by spouses in Texas. However, the election classification doesn’t really matter, if you subsequently elect S-Corp taxation.