I have a single member LLC but did not pay taxes last year because I had no income coming in. A new client wants to pay me using Quickbooks. Whenever I fill out my W9, should I sign up using an EIN as a business or SSN?

[Introspective Introvert]

To any kind soul out there who can help me make a quick decision.

I have a single member LLC and was not required to file taxes this year because I had no income in 2021. Fast forward a year later, I managed to get one paying client and will soon have another paying client.

The new client uses Quickbooks and prefers to pay me through direct deposit, so once we have our discovery call and discuss final details, I will be asked to fill out a W9 form through my Intuit account (according to a Quickbooks tutorial I watched lol).

Since I did not file taxes last year, I will have to make the decision between filing as a sole proprietor (using SSN) or a business (EIN number). I have both but my business does have a registered EIN.

I always hear that single member LLCs are technically taxed as sole proprietors, but I do have my own separate business bank account and do not co-mingle my personal and business accounts. So signing up to be taxed as a business would be the correct step right?

Thank you for your help, I've come a long way from being unemployed for a couple years and just want to make sure I set things up correctly so both me and my client can focus on business matters.

[Mike9241]

payments should be made in the business name so give only the EIN. 

[Opus 17]

You are failing to understand how businesses are taxed. 

A single member LLC is automatically a disregarded entity.  That means you report your income and expenses on a schedule C that is part of your overall tax return form 1040, the same as a sole proprietor with no special legal status.  

The alternative choice is to file as an S-corporation.  In that case, you file form 1120 for the corporation.   The corporation must pay you a salary for the work you do at a fair market wage.   That salary is subject to all the usual rules for a salaried employee--you must withhold federal and state income tax, payroll tax, and possibly unemployment and workers comp.  You must issue yourself a W-2, and file quarterly payroll form 941.  If you have profits in excess of a fair salary for your work, you can take that as a profit distribution.  To file your LLC as an S-corp, you must send the IRS a special form, and the decision can't be more than 60 days retroactive, so if you have income from more than 60 days ago, you would have to file as both a disregarded entity and an S-corp.  (Or, you could make the S-corp election to be effective January 1, and then file as a disregarded entity this year and as an S-corp in the future.). However, filing as an S-corp is substantially different than filing as a disregarded entity/sole prop., and you should not do this without significant expert advance planning and advice.  

Now back to your tax return, if you file as a sole prop/disregarded entity, you and the business are one in the same.  You may use either your SSN or your EIN.  If you have an EIN, I would use it, since the whole point of getting an EIN is to avoid giving out your personal SSN.  (If you have other employees, you must use your EIN.). You are also not required to have separate business bank accounts, although it is a very good idea to do so since it makes record keeping somewhat easier.

[Introspective Introvert]

Thank you!!

[Introspective Introvert]

Thank you so much for your helpful explanation. I am gradually gaining enough income to schedule a consult with a tax professional to ensure that I'm taking the correct course of action when it comes to taxes. It'll be my first time filing as a business, but once everything is said and done it will be a much more easier and simple process to go through. Thank you for your help!

[Carl]

This is just FYI

I to am self-employed with a single member LLC.  It's common for me to receive a W-9 request from vendors, as well as clients.  Under no circumstances and with no exceptions do I ever give out my SSN.  I have no problem providing my EIN.

If my SSN is abused, that can ruin my entire life. Whereas if my EIN is abused, it only affects the business side of things and its easier to handle such a situation. With an EIN, there are only two entities that know what SSN that EIN is tied to.  That's the person that requested the EIN, and the IRS.  No other entity has a need to know what SSN an EIN is tied to. I've never had anyone insist on my SSN. But if they did, they either accept the EIN or take their business elsewhere.

Also, while I don't know it for a fact, I've been told that a compromised/abused EIN can be "closed/cancelled" or whatever the term is. Whereas with an SSN, that can't be done so easily.

[Introspective Introvert]

Hi Carl,

Thank you so much for sharing and for reminding me to always be pre-cautious about sharing my SSN. Maybe I mis-phrased my question, but I believe having an Intuit account linked to Quickbooks stores our personal data safely so the client/employer can only see our banking information and EIN. I apologize if I caused any confusion. I have a learning disability so sometimes I can accidentally mix up my words. It can be tough out there for us self-employed business owners, but alas our hard efforts will always pay off. I wish you all the best in your business and hope that the end of this year and incoming new year will be abundant and successful for you.

[Critter-3]

USE THE EIN SINCE YOU HAVE ONE ... NO SYSTEM IS TOTALLY SECURE.

Read the form instructions here :  https://www.irs.gov/pub/irs-pdf/fw9.pdf

[VolvoGirl]

Back to taxes.  Did you fill out Schedule C for 2021?  Just because you had no income you should still fill out Schedule C.  Did you have expenses?  You can file Schedule C with a loss and deduct it from your other income.

Here is some general self employment information.........

To report your self employment income you will fill out schedule C in your personal 1040 tax return and pay SE self employment Tax.  Here's a Schedule C  https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

You can enter Self Employment Income into Online Deluxe or Premier but if you have any expenses you will have to upgrade to the Self Employed version or use any of the Desktop CD/Download programs.

How to enter self employment income

https://ttlc.intuit.com/community/self-employed/help/how-do-i-report-income-from-self-employment/00/...

For the future, you should use a program like Quicken or QuickBooks to track your income and expenses.  There is a QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Online Self Employed  return....

http://quickbooks.intuit.com/self-employed

You will need to keep good records.  You may get a 1099NEC at the end of the year if someone pays you more than $600 but you need to report all your income no matter how small and if you don't get the 1099NEC.

You use your own records.  You are considered self employed and have to fill out a schedule C for business income.   You use your own name, address and ssn or business name and EIN if you have one.   You should say you use the Cash Accounting Method and all income is At Risk.   

After it asks if you received any 1099Misc or 1099NEC it will ask if you had any income not reported on a 1099Misc. You should be keeping your own records.  Just go through the interview and answer the questions.   Then you will enter your expenses.

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment.  You pay 15.3% SE tax on 92.35% of your Net Profit greater than $400.  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  

The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 Schedule 2 line 4 which goes to 1040 line 23.  The SE tax is in addition to your regular income tax on the net profit.  You do get to take off the 50% ER portion of the SE tax as an adjustment on 1040 Schedule 1 line 15 which flows to 1040 line 10.  Turbo Tax automatically calculates the SE Tax and Adjustment.

Here is some IRS reading material……

IRS information on Self Employment

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center

Pulication 334, Tax Guide for Small Business

http://www.irs.gov/pub/irs-pdf/p334.pdf

Publication 535 Business Expenses

http://www.irs.gov/pub/irs-pdf/p535.pdf

[Introspective Introvert]

Wow, thank you so much for providing so many amazing resources! 🙂 I truly appreciate it. The tax professional I spoke with said I could file my 2021/2022 taxes together because my home state's laws but I definitely plan on getting every thing sorted out soon.

[Opus 17]

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@Introspective Introvert wrote:

Wow, thank you so much for providing so many amazing resources! 🙂 I truly appreciate it. The tax professional I spoke with said I could file my 2021/2022 taxes together because my home state's laws but I definitely plan on getting every thing sorted out soon.

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No no no.  What?  I've never heard that for a state, I could be uninformed.

But your federal 2021 tax return must only list income and expenses for 2021, and your federal 2022 return must only list your 2022 income and expenses.

Now, you may be misinterpreting something.  If you form a business in 2021 but are not actively engaged in business activities and have no income, then you don't report anything for 2021.  Your startup costs are reported as expenses in 2022, sometimes as direct expenses, and sometimes amortized or depreciated, depending on the nature of the expense.  However, if you were actively engaged in business activities in 2021 (advertising for clients, signing contracts, starting work) then you must report that on your 2021 tax return even if you weren't paid for your work until 2022.  You would have a loss for 2021 that you would carry forward to offset your income in 2022, but if you have business activity and expenses (other than startup expenses), you have to report the expenses and business activity on a 2021 return.

[Introspective Introvert]

You reiterated with the CPA said to be so well, my situation applies to what you've stated here: "If you form a business in 2021 but are not actively engaged in business activities and have no income, then you don't report anything for 2021. Your startup costs are reported as expenses in 2022, sometimes as direct expenses, and sometimes amortized or depreciated, depending on the nature of the expense.". I did form my business in 2021 did not begin making an actual income until May 2022 of this year. Thanks for your insight!

[Opus 17]

@Introspective Introvert 

It's not making income that determines if you need to file, it's if you are "actively engaged in business activities with a profit motive."  Even if you didn't get paying customers until 2022, you may still have been actively engaged in seeking profit/customers and that could count as being engaged in business.  But you're probably on track.