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Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 2855
Experience:  18+ years of experience in tax preparation; 25+ years of experience as a real estate/corporate paralegal.
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I just started an LLC in New York and i am the owner and

Customer Question

I just started an LLC in New York and i am the owner and only member. I plan on mainly selling clothing online, maybe some out of my home. Im aware that i have to elect a tax option suitable for my business. How do i do so? What other paperwork (if any) should i be filling out to stay compliant with the IRS? I just want to know what the mandatory actions are that i must take to keep my business legit.
Submitted: 4 months ago.
Category: Tax
Expert:  Mark Taylor replied 4 months ago.

Hi, my name is Mark. I would be happy to help you with your question.

Expert:  Mark Taylor replied 4 months ago.

The default classification of an LLC is a partnership. As you mentioned in your post you have a single member LLC. This is known as a disregarded entity. The reason for this is you need at least two members to have a partnership. From a tax standpoint you would report your income and expenses on a schedule C. The net income of the LLC would be subject to both income taxes and Self - Employment taxes. Self Employment taxes would be 15.3% of the net income up to the FICA limit. Once the limit is reached the Self Employment tax decreased to 2.9 %.

Expert:  Mark Taylor replied 4 months ago.

Many states have an annual report that is due for LLC. You mentioned that you would be selling clothing. You would want to be sure that your LLC applied for local and state sales tax licenses. You need to collect sales tax on your sales.

You have the option of completing a form to be treated as a corporation. Once you complete this form you could file (assuming that it is within the 1st 75 days of your business) Form 2553 to make a S-election. This would treat your LLC as a S-Corporation. The would be an additional administrative burden of need to prepare a separate return for the entity. You would need to prepare a 1120 S. One of the benefits of a single member LLC is that you do not need to file a separate return. You would still file a form 1040 and include a schedule C.

Expert:  Mark Taylor replied 4 months ago.

I hope you found this information to be beneficial. If this answered your question please take a few moments to rate my response. A rating is needed in order for me to receive credit for helping you today. The rating bar is located at the top of the page – ranging from 1 to 5 stars. If you need me to clarify aspect of my response or if there are additional areas of the question that you would like me to consider please let me know. I would be happy to continue the discussion. It has been my pleasure helping you today.

Expert:  Barbara replied 4 months ago.

Different expert here - my name is ***** ***** please allow me to provide correct information.

The default entity status for a single member LLC is sole proprietor. If you are the sole member of your LLC, you do NOT have to take any other action to be tax compliant. You can simply use Schedule C to report your income and expenses and pay income and self-employment tax (social security and medicare) on the NET profit. Please note that you will receive credit for 1/2 of the self-employment tax when you file your tax return.

As to sales tax in NY,

Exempt items - Clothing and footwear sold for less than $110 per item of clothing or per pair of shoes or other articles of footwear, and items used to make or repair exempt clothing, except that this exemption does not apply to any locally-imposed sales taxes unless the county or city imposing the sales tax has elected to also provide for the exemption. (See Publication 718-C, Sales and Use Tax Rates On Clothing and Footwear.) For additional information on the state clothing exemption and a listing of exempt and taxable items, see TSB-M-06(6)S, YearRound Sales and Use Tax Exemption of Clothing, Footwear, and Items Used to Make or Repair Exempt Clothing, Effective April 1, 2006, Tax Bulletins Lists of Exempt and Taxable Clothing, Footwear, and Items Used to Make or Repair Exempt Clothing (TB-ST-530), and Clothing and Footwear Exemption (TB-ST-122).

https://www.tax.ny.gov/pdf/publications/sales/pub750.pdf

I hope this additional information is helpful to you.

Please let me know if I can assist you further.

Thank you and best regards,

Barb

Expert:  Barbara replied 4 months ago.

Just following up with you to see if you have any other questions. If so, please let me know, and I will be happy to assist you further.

Best regards,

Barb

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