Two Member LLC And Taxes

Comments(5)

• 
  Stockpro9916th June, 2004

  Rental income is passive income so a change in LLC to S corp would not be needed. IF it were active in nature an S designation might save self employment taxes.
  [addsig]

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  wexeter18th June, 2004

  A single member LLC is considered to be a disregarded entity, which means the Internal Revenue Service ignores the LLC and looks to the taxpayer instead. If the LLC has two members that are husband and wife and they live in a community property state and file a joint income tax return the LLC will still be considered to be a disregarded entity, which could be an important fact when you get to the point of doing a 1031 exchange. If the two members are H&W but they live in a non-community property state then there is no clear guidance as to whether this is considered to be a single member or dual/multi member LLC and we typically advise treating it as a multi member LLC to be on the conservative side.
  
  In your case, if you are only asking about the annual tax reporting issues for your income tax return, then all limited liability companies (LLC) are considered to be "pass-thru" entities and the income is reported on your joint income tax return.
  
  _________________
  Bill Exeter[ Edited by JohnLocke on Date 06/19/2004 ]

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  davidwburns18th June, 2004

  I guess what I really need to know is the schedules that I would need to complete at tax time. Before the LLC I would complete Schedule E. Now I'm not sure which schedule to complete. To form the LLC I had to acquire a Tax ID #. Schedule E has no place to enter the tax id#, just a SS#. I'm just trying to figure out which form to complete and how my tax gain or loss will be affected. Also, with a schedule C will I have to pay self-employment tax?
  
  Thanks for your help!

• 
  NewKidinTown18th June, 2004

  Here is what I found on the IRS web site. The following may answer some of your quesitons.
  
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  It is possible for either the husband or the wife to be the owner of the sole proprietor business. The other person could work in the business as an employee. If the spouses intend to carry on the business together and share in the profits and losses, then they have formed a partnership.
  
  See Rev. Proc. 2002-69 for Special Rules for Spouses in Community States and Publication 541, Partnerships
  
  Partners are considered to be self-employed. If you are a member of a partnership that carries on a trade or business, your distributive share of its income or loss from that trade or business is net earnings from self-employment. Limited partners are subject to self-employment tax only on guaranteed payments, such as salary and professional fees for services rendered.
  
  The form you use to file your return will depend on what kind of entity your business is for Federal tax purposes. Following are some general guidelines and the forms which go with each entity:
  
  If your business has only one owner, it will automatically be considered to be a sole proprietorship (referred to as an entity to be disregarded as separate from its owner) unless an election is made to be treated as a corporation. A sole proprietorship files Form 1040, U.S. Individual Income Tax Return and will include Form 1040, Schedule C, Profit or Loss from Business, or Form 1040, Schedule C-EZ and Form 1040, Schedule SE, if net income $400.00. If an election is made to be treated as a corporation, Form 1120, U.S. Corporation Income Tax Return, is filed. If your business has two or more owners, it will automatically be considered to be a partnership unless an election is made to be treated as a corporation. A partnership files Form 1065, U.S. Partnership Return of Income. If an election is made to be treated as a corporation, Form 1120, U.S. Corporation Income Tax Return, is filed. The election referred to is made by filing Form 8832, Entity Classification Election.
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  In addition to the Form 1065, each partner should receive a Schedule K-1 (1065) showing each partner's distributive share of the partnership income. If all of your partnership income (loss) is from a passive activity (such as from rental property), then the income (loss) is a passive activity amount for all partners. This amount is reported on your personal 1040 at Schedule E. No self-employment income taxes apply to passive activities.[ Edited by NewKidinTown on Date 06/18/2004 ]

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  cjmazur18th June, 2004

  For me the big reason to hold properties in an LLC is to creat a liability shield between personal and LLC assets, is the LLC is sued.
  
  The k-1 is the key to bringing the income/loss back onto the 1040.