[jwasbury]

Does Washington State law allow for a single-member LLC? Not all states do.

The default federal tax status for a single member LLC is that its a "disregarded entity" and therefore taxed like a sole-proprietor (you file schedule C attached to your Form 1040). I like single member LLCs when possible because the business owner gets the limited liability protection of a corporation, but avoids the extra administrative hassle of filing a stand-alone business tax return. With this structure you will pay self-employment (SE) tax.

With a C-Corp (or LLC with an election to be taxed as a Corp), you won't pay SE tax on the income earned inside the business, but you will pay corporate income tax (and will have the admin hassle and cost of filing a business return). Then you have to consider how you will get your $$ out of the corporate entity. If you choose to pay income out as dividends, you pay individual tax on the dividend income (double tax). You can also pay yourself wages out of the corporation, which is of course deductible expense for the corp, and taxable income to you as an individual. Then you have to withhold employment taxes (FICA and medicare), and file payroll tax returns (Forms 940 and 941), which in my opinion is more of a PITA than just being a sole proprietor and paying the SE tax when filing your 1040.

S-Corps eliminate the double tax problem on dividends, but theoretically you cannot pay yourself only dividends out of an S-Corp when you are actively involved in the business. The IRS will want to see you pay yourself at least some "reasonable" amount of wages if you're providing services to your corporation. A lot of people think they will avoid employment tax by not paying themselves wages out of S-Corps, and perhaps you can so long as you're not audited.

IMHO unless you expect this thing to get big, the best thing is to follow the K.I.S.S. principle. Schedule C - sole proprietor, with a single member LLC for liability protection if your state allows this.