Choice of Entity Issues: Single-Member LLCs vs. ‘Regular’ Sole Proprietorships

Journal of Taxation, Vol. 117, No. 5, 2012

Mays Business School Research Paper No. 2340544

Posted: 15 Oct 2013 Last revised: 12 Jun 2019

See all articles by Roy Clemons

Roy Clemons

New Mexico State University

Dennis R. Lassila

Texas A&M University - Department of Accounting

Abstract

While the federal and state income taxation of regular sole proprietorships and single member LLCs taxed as sole proprietorships and the taxation of the owners of such businesses is substantially the same, there are a number of tax and non-tax differences that should be taken into account in deciding upon the type of business entity to use for business operations. In the case of small businesses with no employees, there is little difference between the two types of entities except, perhaps, with respect to the treatment of liabilities of the owner and of the business and the state tax treatment of the business in some states. On the other hand, for more complex businesses that have employees and/or are subject to federal excise taxes, the single member LLC is treated as a separate tax entity for reporting, deposit, and payment obligations, whereas the regular sole proprietorship is not. Further, the single member LLC has easier options to change the way in which it is taxed than does the regular sole proprietorship. In summary, this article covers some of the more important tax and non-tax differences between the two types of entities.

Keywords: non-tax, regular sole proprietorship, LLC

Suggested Citation

Clemons, Roy and Lassila, Dennis R., Choice of Entity Issues: Single-Member LLCs vs. ‘Regular’ Sole Proprietorships. Journal of Taxation, Vol. 117, No. 5, 2012; Mays Business School Research Paper No. 2340544. Available at SSRN: https://ssrn.com/abstract=2340544

Roy Clemons (Contact Author)

New Mexico State University ( email )

P.O. Box 30001
Las Cruces, NM 88003-8001
United States

Dennis R. Lassila

Texas A&M University - Department of Accounting ( email )

430 Wehner
College Station, TX 77843-4353
United States
979-845- 4584 (Phone)

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