Most founders assume their LLC files its own tax return. A single-member LLC usually does not. For federal income tax, the IRS does not treat it as a separate entity from its owner. The business income lands on the owner's personal return, and the page it lands on is Schedule C.
Schedule C is titled "Profit or Loss From Business (Sole Proprietorship)." You list what the business took in, you list what it spent, and the bottom of the form shows the difference. That number then moves into your personal tax return.
The form itself is the same for a U.S. person and for a non-resident. What changes is the return you staple it to, and whether a second tax, self-employment tax, comes with it.
What the rule actually requires
Three facts do most of the work here.
1. Schedule C reports a business you run as an individual. The IRS says you use it to report income or loss from a business you operated, or a profession you practiced, as a sole proprietor. An activity counts as a business if you carry it on with continuity and regularity, and your main purpose is income or profit. A hobby that occasionally makes money is not a business. A weekend project you run every week, to make money, is.
2. A single-member domestic LLC is ignored for federal income tax. The IRS calls it a disregarded entity. Unless the LLC elects to be taxed as a corporation, the owner reports the business activity on Schedule C, or on Schedule E for rental property, or on Schedule F for farming. There is no separate LLC income tax return. The LLC still exists as a legal company under state law. It just does not exist as a separate taxpayer.
This is the sentence that surprises people. Forming an LLC does not create a new tax return. It creates a separate company under state law, and nothing more than that on the federal income tax side.
3. Net profit on Schedule C can trigger a second tax. Line 31 of Schedule C is the net profit or loss. If your net earnings from self-employment are $400 or more, you generally must pay self-employment tax and file Schedule SE. Self-employment tax is 12.4% for Social Security plus 2.9% for Medicare, which is 15.3% together. Two limits sit inside that rate. The tax applies to 92.35% of your net earnings, not to all of it. And the 12.4% Social Security part stops at the Social Security contribution and benefit base, an amount that changes every year, while the 2.9% Medicare part has no ceiling. Income tax is calculated separately, on top of that.
So a U.S. sole proprietor with $50,000 of net profit is looking at two bills: income tax on the profit, and self-employment tax on it as well.
🇺🇸 If the IRS counts you as a U.S. person
You attach Schedule C to your Form 1040.
The order of the forms is worth learning once:
- Schedule C reports the business. Revenue, then expenses, then net profit on line 31.
- That net profit flows into your Form 1040 as income.
- If the net profit is $400 or more, Schedule SE calculates self-employment tax on it, and that tax is added to your 1040 as well.
Two practical consequences.
First, there is no employer covering half of your Social Security and Medicare. As an employee you would pay 7.65% and your employer the other 7.65%. As a sole proprietor you are both sides, which is where the 15.3% comes from.
Second, tax is not withheld for you. Nobody deducts anything from the money your customers send. You are expected to pay through the year in estimated payments, and if you wait until April you may owe a penalty for paying late.
🌏 If it does not
You file Schedule C only if you actually have a U.S. trade or business. Owning a U.S. LLC is not the same thing as having one. Many non-residents own a U.S. LLC, do all their work from another country, and have no U.S. trade or business at all. That question is decided by what you do and where you do it, not by where the company is registered.
If you do have a U.S. trade or business, then:
- You file the same Schedule C. There is no separate non-resident version of the form.
- You attach it to Form 1040-NR, not Form 1040.
- Self-employment tax normally does not apply to you. The law, at 26 U.S.C. § 1402(b), defines self-employment income as net earnings "derived by an individual (other than a nonresident alien individual, except as provided by an agreement under section 233 of the Social Security Act)." Non-resident aliens are written out of the definition. The exception is a totalization agreement between the United States and another country, which can change the answer, so check whether your country has one.
There is a second obligation that has nothing to do with Schedule C, and non-residents miss it constantly. A single-member LLC owned by a foreign person is treated as a corporation for one narrow reporting purpose, and it files Form 5472 attached to a pro forma Form 1120. What triggers that filing is a reportable transaction with a related party, which includes money you put into the LLC and money you take out of it. Income is not the trigger, so the filing can be due in a year when the LLC has no U.S. trade or business, no income and no tax to pay. It is separate from your personal return. Schedule C does not replace it, and filing Schedule C does not excuse you from it.
The two lanes side by side
| Item | 🇺🇸 U.S. person | 🌏 Not a U.S. person |
|---|---|---|
| Which form reports the business | Schedule C | Schedule C (the same form) |
| Which return you attach it to | Form 1040 | Form 1040-NR |
| When you file it | You have a business, as defined above | Only if you have a U.S. trade or business |
| Is the single-member LLC a separate taxpayer? | No | No |
| Self-employment tax at $400+ net earnings | Yes, Schedule SE, 12.4% + 2.9% | Generally no. § 1402(b) excludes non-resident aliens, unless a totalization agreement says otherwise |
| Form 5472 with a pro forma 1120 | Not required for this reason | Required for a foreign-owned single-member LLC that had a reportable transaction |
The form is shared. The return underneath it, and the second tax, are not.
Common mistakes
🇺🇸 If the IRS counts you as a U.S. person
- Waiting for the LLC to file its own return. It will not. If you never file Schedule C, the income was never reported.
- Forgetting Schedule SE. Income tax and self-employment tax are two different calculations, and the second one starts at $400 of net earnings.
- Paying nothing during the year, then meeting the whole bill in April. No one withholds tax from customer payments for you.
- Calling a money-making activity a hobby to avoid the form. The test is continuity, regularity and a profit motive, not what you call it.
🌏 If it does not
- Filing Schedule C because you own a U.S. LLC, when you have no U.S. trade or business. Owning the company and running a business inside the United States are two different questions.
- Attaching Schedule C to Form 1040. Your personal return is Form 1040-NR.
- Paying self-employment tax because a U.S. article said everyone pays it. The statute excludes non-resident aliens.
- Believing Schedule C is your whole obligation, and skipping Form 5472. Those two filings are unrelated, and Form 5472 can be due in a year with no income at all, because reportable transactions trigger it.
FAQ
Does my single-member LLC file its own tax return?
For federal income tax, no. The IRS does not treat a single-member LLC as separate from its owner unless the LLC elects to be taxed as a corporation. The owner reports the business on Schedule C, or on Schedule E or Schedule F depending on the activity.
I have an LLC, not a sole proprietorship. Why is the form called "Sole Proprietorship"?
Because for tax purposes the IRS is looking through the LLC. Your LLC still protects you legally under state law. It just is not a separate taxpayer, so your business is reported the same way a sole proprietor's business is.
When do I have to pay self-employment tax?
When your net earnings from self-employment are $400 or more, you generally must file Schedule SE and pay it. The rate is 12.4% for Social Security plus 2.9% for Medicare, applied to 92.35% of your net earnings. The Social Security part stops at an annual limit that changes each year. The Medicare part does not.
I am a non-resident. Do I pay self-employment tax on my Schedule C profit?
Normally no. The law defines self-employment income as earnings derived by an individual other than a non-resident alien individual. The exception is a totalization agreement under section 233 of the Social Security Act, so check whether one exists between the United States and your country.
I am a non-resident with a U.S. LLC and no U.S. customers or activity. Do I file Schedule C?
Schedule C applies when you have a U.S. trade or business. If you do not have one, that form is not the issue. Form 5472 with a pro forma Form 1120 may still be, because that filing is triggered by reportable transactions between the LLC and its related parties, including contributions and distributions, and not by income.
What if my business lost money this year?
Schedule C reports a loss as well as a profit. That is why the form is called "Profit or Loss From Business." A loss is still reported, and there is no self-employment tax when there are no net earnings.
My LLC has two owners. Do we each file a Schedule C?
No. Schedule C is for a business with a single owner. A multi-member LLC is normally treated as a partnership, which files Form 1065 and issues a Schedule K-1 to each owner.
Does filing Schedule C make me a U.S. person for tax purposes?
No. A U.S. citizen is a U.S. person by citizenship. For everyone else, the IRS decides it with the green card test and the substantial presence test. Either way it is not decided by which forms you file. A non-resident with a U.S. trade or business files Schedule C and stays a non-resident.