A single-member LLC in Alabama costs $228 to form ($200 Certificate of Formation + $28 name reservation). Name reservation is mandatory before you file. There is no annual report for LLCs. Most small LLCs pay no business privilege tax. The LLC is a disregarded entity for federal taxes — it does not file its own return.
What a single-member LLC actually is
Forming an LLC does two separate things that are easy to conflate. Under Alabama state law, it creates a legal entity separate from you — and that separation is the source of the liability shield. Under federal tax law, by default, nothing changes at all. The IRS treats a domestic single-member LLC as a disregarded entity — it's as if the LLC doesn't exist for income tax purposes.
This means a single-member LLC can change your legal posture entirely while changing nothing about how you file your taxes. The two systems are answering different questions.
What it does and does not do
| Common belief | What the IRS actually says |
|---|---|
| "An LLC means I don't pay self-employment tax" | A single-member LLC owner is subject to self-employment tax in the same manner as a sole proprietorship. Forming the LLC changes nothing here. |
| "The LLC files its own tax return" | If the LLC is a disregarded entity, it should not file an income tax return. Its activity appears on the owner's personal return. |
| "Disregarded" means disregarded for everything" | Disregarded status stops at the payroll line. For employment taxes and certain excise taxes, the LLC is treated as a separate entity. |
| "I need an EIN because I formed an LLC" | Not necessarily. A disregarded SMLLC with no employees generally uses the owner's SSN. An EIN is required for employees, excise taxes, a corporate election, or when a bank requires one. |
The liability shield is the part this page cannot advise you on. Every other item here is procedural — a form, a fee, a deadline. Whether an LLC will actually protect your particular assets from your particular risks is a legal question. It's the single most important reason people form LLCs, and the right place to take it is to an Alabama attorney.
How to form a single-member LLC in Alabama
The procedural parts are straightforward: reserve a name, file one form, pay $200. Most of the difficulty people encounter comes from outdated guidance about the county probate court (no longer correct) or missing the licensing step that formation doesn't cover.
Three things you'll see online that are wrong as of 2026: (1) That the Secretary of State fee is $150 — that's the foreign LLC fee, not the domestic fee. (2) That you file with your county probate court — you file directly with the Secretary of State. (3) That LLCs must file an Alabama annual report — they don't, and annual reports from LLCs are not accepted.
Formation fees
Confirm fees before filing. The $150 figure appearing on many formation sites is the fee for a foreign LLC registering in Alabama — not the domestic LLC fee. The domestic LLC fee is $200. Verify current amounts at sos.alabama.gov before filing.
Federal tax treatment
A domestic LLC with one member is treated as a disregarded entity for federal income tax purposes unless it files Form 8832 and elects corporate treatment. No paperwork is needed to obtain the default treatment.
Where the activity gets reported depends on what the business does:
| Schedule | Used for |
|---|---|
| Schedule C | Profit or Loss from Business — the standard case for an operating business |
| Schedule E | Supplemental Income or Loss — the standard case for rental real estate |
| Schedule F | Profit or Loss from Farming |
Self-employment tax
Forming an LLC does not eliminate self-employment tax. An individual owner of a single-member LLC that operates a trade or business is subject to self-employment tax in the same manner as a sole proprietorship. This is one of the most common misconceptions about LLCs.
The employment tax exception
"Disregarded" stops at the payroll line. The moment you hire anyone, the LLC needs its own EIN and files employment tax returns in its own name — even though it remains disregarded for income tax. A single-member LLC is treated as a separate entity for employment taxes and certain excise taxes, and must use its own name and EIN for those purposes. Source: IRS Publication 3402.
Alabama state obligations
Business privilege tax
Alabama's business privilege tax is levied for the privilege of being organized under Alabama law or doing business in Alabama. The rules changed significantly for tax years beginning after December 31, 2023.
Most small single-member LLCs no longer file the BPT return. For taxable years beginning after December 31, 2023, there is a full exemption from the business privilege tax on tax due of $100 or less. Taxpayers whose business privilege tax is $100 or less are not required to file Form PPT, CPT, or BPTIN. The authority is Act 2022-252, amending § 40-14A-22, Code of Alabama 1975. Source: Alabama Department of Revenue.
The exemption is based on computed tax, not entity type. A growing LLC can cross the $100 threshold without any change in structure. When your LLC files the BPT, it uses Form PPT (not Form CPT, which is for corporations). Forms PPT and CPT are due on the same date as the corresponding federal income tax return.
Late filing penalty: 10% of tax shown due or $50, whichever is greater. Late payment penalty: 1% per month, not to exceed 25%.
Annual report
Alabama LLCs do not file an annual report. As of January 1, 2024, only domestic and foreign for-profit corporations and professional corporations file annual reports in Alabama. Annual reports from LLCs are not accepted. Source: Alabama Department of Revenue, "Important Changes to the 2024 Business Privilege Tax Filing Requirements."
State tax registration
Separate from the privilege tax, a business that sells or rents tangible personal property, withholds Alabama income tax from employees, or administers other state tax accounts registers through the Department of Revenue's My Alabama Taxes portal at myalabamataxes.alabama.gov. Which accounts you need depends on what your business does.
Business licensing — the step most people miss
Forming the LLC and licensing the business are two completely separate processes. A privilege license is required of every person, firm, or company engaged in any business described in Title 40, Chapter 12, Code of Alabama 1975. The license is issued by the county probate judge or license commissioner in the county where the business is located — not by the Secretary of State.
There are three layers:
| Layer | Who issues it |
|---|---|
| State/county business privilege license — required for occupations in Title 40, Chapter 12, one per county | County probate judge or license commissioner |
| Municipal license — a separate city-level requirement | Each city where you do business |
| State tax accounts and occupational licenses | Alabama Dept. of Revenue / individual licensing boards |
County procedures vary and are not standardized. Call the specific county office before assuming any process. See our county guides: Madison County, Jefferson County, Tuscaloosa County, Huntsville.
Federal beneficial ownership reporting (BOI)
Alabama LLCs are currently exempt from BOI reporting. FinCEN published an interim final rule on March 26, 2025, exempting all entities created in the United States from the Corporate Transparency Act BOI reporting requirement. An Alabama single-member LLC does not need to file an initial, updated, or corrected BOI report under the current rule.
This is an interim rule — verify before relying on it. FinCEN adopted this exemption through an interim final rule and stated it intended to issue a final rule. Check fincen.gov/boi for the current status before concluding you have no reporting obligation.
Recurring obligations at a glance
| Obligation | Applies to a typical small SMLLC? |
|---|---|
| Federal income tax reporting on the owner's return (Schedule C/E/F) | Yes — annually |
| Self-employment tax (with quarterly estimated payments) | Yes, if operating a trade or business |
| Alabama business privilege tax return (Form PPT) | Only if computed tax exceeds $100 |
| Alabama annual report | No — LLCs are outside the requirement |
| County business privilege license renewal | Yes — annually, per county where you do business |
| FinCEN BOI report | No — under the current March 2025 interim rule (verify) |
| Registered agent maintenance | Yes — continuous requirement |
| Keeping entity and personal finances separate | Yes — no deadline, but largest consequences if ignored |
Common mistakes
| Mistake | What actually happens |
|---|---|
| Filing with the county probate court | Outdated guidance still describes the old process. File the Certificate of Formation with the Secretary of State directly. |
| Skipping the name reservation | The Secretary of State will not accept your formation documents. The Certificate of Name Reservation is mandatory, not optional. |
| Assuming formation = licensed to operate | Operating without a required business privilege license. Contact the county license office and every city where you do business. |
| Filing an annual report | Alabama LLCs have no annual report requirement. Annual reports from LLCs are not accepted. |
| Not getting an EIN before hiring | The LLC must use its own EIN for employment taxes — even if it's disregarded for income tax. |
| Running business income through a personal account | Undermines the separation the entity exists to create. Open a dedicated account before the first dollar moves. |
| Skipping the operating agreement | Banks and lenders ask for it. It's also part of the evidence that the entity is real and separate. |