united-states, taxes, llcMy wife and I have recently formed a LLC for some of the consulting we do in a spare time. We’re both fully employed with another company, and the founding members of the LLC with 50 50 percent ownership
In terms of employees, are we employees of the LLC? As in part employees? We have also on one occasion paid 3rd person to do some of the work for us for few hours and we billed our client for it.
I’ve tried googling but found confusing information regarding this, I was trying to find out, if the LLC currently has 0 employees or the members and occasional contractors are considered employees too?
You are not an employee unless you have taken the steps required by law for your LLC to legally hire you. The same is also true for contractors. Although, they could be considered a de facto employee if they are working almost exclusively for you. That is a separate question. You might want to do a separate search for contractor vs. employee, if that is a concern.
Back to this question. You can find a summary of the steps toward hiring an employee at https://www.sba.gov/content/hire-your-first-employee, but you will want to consult your secretary of state for the details for your particular state. This would have to be done for you or any other person to be considered an employee.
You might choose to do this for various tax/accounting reasons, but should talk to an accountant first to make sure that it would even be helpful. It is not likely in your case that you would want to since this is not your primary source of income anyway.
So that said, yes the LLC has zero employees. Note, however, that many times a form will ask the number of employees when they simply mean the number of people working at the company. In that case you could count both owners and any active contractors.
1) If your LLC has not been issued a separate EIN and your only other member is your wife, and you live in a community property state you can choose not to report as a partnership but choose to be a “disregarded entity” and report the activity on Schedule C using one SSN. And thus to be treated as “self-employed”…. In a non-community property state you are required to get a separate EIN for the LLC. In that case you would be “members” Sorry for the multiple caveats. Husband - wife LLCs can be complicated.
Here is a good discussion on that issue. https://ttlc.intuit.com/questions/2133106-how-should-a-husband-wife-llc-file
2) My advice is to request an EIN. You have the choice to elect to have your LLC treated as a partnership, C-corporation or S-Corporation. See IRS Form 8832. Regardless of what form of entity structure you choose, you are officially “members”. In a partnership structure you have the same rules and regulations as a partnership. You are “members” but you are de-facto partners and receive a K-1. In a C-Corporation or an S-Corporation and if you receive compensation, you are treated as employees and receive a W-2. Additionally, if you elect S-Corporation status, you may receive a W-2 and a K-1. To make a choice other than a partnership, I recommend you see a tax CPA or a tax lawyer.
The instructions for an EIN. https://www.irs.gov/pub/irs-pdf/iss4.pdf
The application form. https://www.irs.gov/pub/irs-pdf/fss4.pdf
The link to Form 8832 https://www.irs.gov/pub/irs-pdf/f8832.pdf
Your election choices are not locked forever, but you must use the rules of your choice entity to make any changes.
The default election (one you don’t make) is partnership. So if you do not file Form 8832, you will be treated as partners. The partnership is required to file Form 1065 and you receive a K-1 rather than a W-2.
I recommend that you read IRS Publication 541 and the instructions to Form 1065.
https://www.irs.gov/pub/irs-pdf/p541.pdf
https://www.irs.gov/pub/irs-pdf/i1065.pdf
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