Introduction
You are ready to start your business. You know you want an LLC for liability protection. But when you fill out the forms, you hit a confusing question:
“Is this a Single-Member or Multi-Member LLC?”
Most founders think this just means “How many owners do we have?”
But in the eyes of the IRS, checking the wrong box can cost you thousands in tax prep fees and triple your audit risk in 2026.
In this guide, we break down the massive tax differences between the two, including why Single-Member LLCs are usually the smarter choice for solo founders.
The Core Difference: How You Pay Taxes
The IRS does not actually have a tax category for “LLC.” Instead, they look at how many owners you have.
1. Single-Member LLC (The “Disregarded Entity”)
If you are the only owner, the IRS treats your business as a “Disregarded Entity.”
- How you file: You file a Schedule C attached to your personal 1040 return.
- Complexity: Low. It is the same as being a Sole Proprietor.
- Deadline: April 15, 2026.
2. Multi-Member LLC (The “Partnership”)
If you have 2+ owners (even if the second owner is your spouse!), the IRS treats you as a Partnership.
- How you file: You must file Form 1065 (a completely separate business return) and issue Schedule K-1s to every owner.
- Complexity: High. You cannot do this on free software.
- Deadline: March 15, 2026 (One month earlier!).
The “Hidden” Costs of a Multi-Member LLC
Before you add a partner just for fun, consider the costs.
1. Tax Software is More Expensive
You cannot use the free version of TurboTax or H&R Block for a Multi-Member LLC.
- Single-Member: Can use FreeTaxUSA ($0) or TurboTax Self-Employed.
- Multi-Member: Must use TurboTax Business Desktop (~$190) or hire a CPA ($1,000+).
2. Audit Risk in 2026
The IRS has announced a strategic plan to increase audits on “Complex Partnerships” (Multi-Member LLCs) by ten-fold starting in 2026. Single-Member LLCs generally face lower scrutiny compared to high-asset partnerships.
When Should You Choose Multi-Member?
Despite the cost, a Multi-Member LLC is mandatory if you have real business partners. It offers Stronger Liability Protection.
In many states, if a Single-Member LLC owner is sued personally (e.g., for a car accident), creditors can seize the business assets. Multi-Member LLCs have “Charging Order Protection,” making it harder for personal creditors to touch the business.
Summary: The Pros & Cons
| Feature | Single-Member LLC | Multi-Member LLC |
| IRS Classification | Disregarded Entity | Partnership |
| Tax Forms | Schedule C (Easy) | Form 1065 + K-1 (Hard) |
| Filing Deadline | April 15 | March 15 |
| Tax Prep Cost | Low ($0 – $100) | High ($200 – $2,000) |
| Audit Risk (2026) | Standard | Increasing |
| Liability Shield | Good | Stronger |
Verdict: Keep It Simple
- If you are a solo founder: Stick to a Single-Member LLC. It saves you money on tax software and legal headaches.
- If you have investors/partners: You must form a Multi-Member LLC.
- Pro Tip: You will need a robust Operating Agreement to define who owns what percent.
Need to file your 2025 Taxes?
Don’t wait until the March 15th deadline.
