Janitor Bob Posted January 7, 2015 Report Share Posted January 7, 2015 Husband and wife form a llc in 2014. Do they need to file 1065 and k-1s or can the llc elect to be treated as a qualified joint venture and divide the income/loss on respective Sch C? Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted January 7, 2015 Author Report Share Posted January 7, 2015 Disregard...I see that because they filed as an llc, they MUST file 1065 and K-1s 2 Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted January 7, 2015 Report Share Posted January 7, 2015 Disregard...I see that because they filed as an llc, they MUST file 1065 and K-1s You are correct. All income is subject to SE. Quote Link to comment Share on other sites More sharing options...
cred65 Posted January 7, 2015 Report Share Posted January 7, 2015 Disregard...I see that because they filed as an llc, they MUST file 1065 and K-1sOr they could elect Sub S, pay salaries and avoid SE tax on distributions. Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted January 7, 2015 Report Share Posted January 7, 2015 Or they could elect Sub S, pay salaries and avoid SE tax on distributions. Only AFTER taking a proper and reasonable salary on a W-2, with withholdings. This also includes unemployment taxes and workers compensation. Best to stay as a partnership. 2 Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted January 7, 2015 Author Report Share Posted January 7, 2015 I was looking at the LLC filing. Only the wife is listed as the agent and the Corporation details lists ONLY the wife as the incorporator. However, both husband and wife signed the articles of incorporation. Should I consider this a one-person LLC (disregarded entity)....and file a Sch C for wife or since both signed is this a partnership? Quote Link to comment Share on other sites More sharing options...
jklcpa Posted January 8, 2015 Report Share Posted January 8, 2015 Having only one person listed as agent doesn't determine how you should file. The agent is the person designated to act as the representative and be the contact person for legal matters of the LLC. Is there a section that pertains to ownership or issuance of the shares of stock included in the articles of incorporation? The fact that both signed is not indicative that the wife is not the sole owner. A corporation can have officers that are not owners. Are there titles indicated with each of their signatures, or does it say something like "member" there? Quote Link to comment Share on other sites More sharing options...
jklcpa Posted January 8, 2015 Report Share Posted January 8, 2015 The first place that the wife signed was to act as the agent, just as I said. In what capacity the final 2 signatures were made is not clear. It says that form may be signed by a member, manager, or other representative. The only stipulation is that they have the authority to act on behalf of the LLC. I think you need to ask your client what their titles are and their intent. I'm leaning toward a 2-person LLC, but it really is not clear. I think you should delete that document from your post because, unless that information is all a matter of public record, you shouldn't be disclosing that on a public forum. 1 Quote Link to comment Share on other sites More sharing options...
mcb39 Posted January 8, 2015 Report Share Posted January 8, 2015 Two Person. She is the Tax Matters Partner. Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted January 8, 2015 Author Report Share Posted January 8, 2015 Thanks...I am also leaning toward 2-person as the wife used the word "we" when she stated that "they" filed as a LLC. It is all public record. I would not have posted it otherwise. Quote Link to comment Share on other sites More sharing options...
easytax Posted January 8, 2015 Report Share Posted January 8, 2015 JKLCPA, You are basically correct and without going into UPL (unauthorized practice of law) I share the following information and possibilities: Typically the "Articles of Org, etc." are public documents and are used by the state entities to "track/register" the operation. Many states use what is called an 'operating agreement" that usually is NOT filed with the state and can be (usually is) a private document that is NOT-public. This "operating agreement" typically states the desired plans/set up of the LLC (such as if it is a single member controlled, partnership controlled, etc.). Therefore the intent and desires of the couple is what counts here. Did the two people want to be a "dis-regarded entity (sole pro) or did the want to be a partnership (two or more) or as you know a corporation. Your statement that the "intent" of the parties is RIGHT ON, as long as they did not either knowingly or Unknowingly make the wrong statements in the "operating agreement" (NOTE: some states call it something else other than an "operating statement" --- but --- the "operating statement" is different and totally separate from the "Articles of Org., etc.". 4 Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted January 8, 2015 Author Report Share Posted January 8, 2015 Once they see what I charge for a 1065 and two K1s vs. a Sch C, they wish they were single-member disregarded entity! 3 Quote Link to comment Share on other sites More sharing options...
NECPA in NEBRASKA Posted January 8, 2015 Report Share Posted January 8, 2015 I have the same issue with a client now. They didn't ask questions until they had filed as a 2 member LLC with Legalzoom. The wife has nothing to do with the business at all, but now they will get to pay big bucks for a partnership return and 1040. Apparently, Legalzoom led them to believe that it should be a 2 member LLC. They wanted to have it as an S Corp, with no salary, but that's not happening if I'm preparing the returns. There is plenty of income. Quote Link to comment Share on other sites More sharing options...
DevM Posted January 8, 2015 Report Share Posted January 8, 2015 I would also check SS4 (EIN) letter to see if they received EIN with the intentionof filing 1065. 2 Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted January 8, 2015 Report Share Posted January 8, 2015 Once they see what I charge for a 1065 and two K1s vs. a Sch C, they wish they were single-member disregarded entity! That should never be the deciding factor. Clearly they had a reason for deciding to form the LLC, probably related to liability protection. Thus a bit higher filing cost should be a normal, and justified, business expense, just like insurance, utilities, etc. 1 Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted January 8, 2015 Author Report Share Posted January 8, 2015 I know she intended to file as LLC....I'm just not sure she meant to file as a 2-member LLC. Once I explain the filing differences and why I will need to charge her more, I sure she will be slightly "displeased" Quote Link to comment Share on other sites More sharing options...
Lion EA Posted January 8, 2015 Report Share Posted January 8, 2015 Check her SS-4 EIN application to see how she intended to file; or her IRS letter accepting same and issuing her EIN. (There is no tax entity LLC, only a state-by-state legal entity.) Quote Link to comment Share on other sites More sharing options...
jklcpa Posted January 8, 2015 Report Share Posted January 8, 2015 That's assuming the person or couple have filed an SS-4. They'll need the EIN to open a bank account in the LLCs name, but we've probably all seen creative owners in that regard too. I've even seen where attorneys have prepared articles of incorporation, by laws, corp minutes, issued shares, filed with the Sec of State, and might even be acting as the corp's agent for an additional fee, BUT they fail to file the SS-4. Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted January 9, 2015 Author Report Share Posted January 9, 2015 They have not yet filed for an EIN nor have they opened a bank account in e name of the LLC. Quote Link to comment Share on other sites More sharing options...
HV Ken Posted January 9, 2015 Report Share Posted January 9, 2015 Only AFTER taking a proper and reasonable salary on a W-2, with withholdings. This also includes unemployment taxes and workers compensation. Best to stay as a partnership. Gotsta do the math on that one, Jack. There will come a point in time where the tax savings from being an S-Corp will exceed the additional costs that you point out, and at that time the S-Corp becomes the better choice than Partnership. 2 Quote Link to comment Share on other sites More sharing options...
NECPA in NEBRASKA Posted January 9, 2015 Report Share Posted January 9, 2015 My guy would like to file as a one member LLC now, because he said that he didn't want to have a partnership. Great timing! Why don't they ask earlier? He does have an EIN and the IRS expects a 1065. Quote Link to comment Share on other sites More sharing options...
Lynn EA USTCP in Louisiana Posted January 9, 2015 Report Share Posted January 9, 2015 NECPA in Nebraska, then file the first and final 1065 with all zeroes. Avoids IRS correspondence and penalty assessments that must be responded to. Charge a fee, even a nominal one, since the client did this before consulting his tax advisor. 3 Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted January 9, 2015 Report Share Posted January 9, 2015 Gotsta do the math on that one, Jack. There will come a point in time where the tax savings from being an S-Corp will exceed the additional costs that you point out, and at that time the S-Corp becomes the better choice than Partnership. It is my experience that, until a business shows a PROFIT of over $100K, there is no tax benefit that outweighs the extra expense to being an S-Corp. (legally, that is) I have yet to see as start-up business grow that large in 2-3 years. 1 Quote Link to comment Share on other sites More sharing options...
HV Ken Posted January 9, 2015 Report Share Posted January 9, 2015 It is my experience that, until a business shows a PROFIT of over $100K, there is no tax benefit that outweighs the extra expense to being an S-Corp. (legally, that is) I have yet to see as start-up business grow that large in 2-3 years. The SE tax alone on a 100k profit can be 15k. The extra expenses for the S-Corp won't even come close to that and the savings will be several thousands. In my opinion, that threshold is a bit too high. I agree, in general, with your statement about a start-up. I would expect a business to be around for awhile and make it from start-up to mature at some point. Long term, big picture thinking! Our recommended approach (not always) is start as LLC and elect S-Corp when the numbers make sense. This provides more flexibility for the business owner. Quote Link to comment Share on other sites More sharing options...
mcb39 Posted January 9, 2015 Report Share Posted January 9, 2015 The SE tax alone on a 100k profit can be 15k. The extra expenses for the S-Corp won't even come close to that and the savings will be several thousands. In my opinion, that threshold is a bit too high. I agree, in general, with your statement about a start-up. I would expect a business to be around for awhile and make it from start-up to mature at some point. Long term, big picture thinking! Our recommended approach (not always) is start as LLC and elect S-Corp when the numbers make sense. This provides more flexibility for the business owner. At the incomes that you and Jack are talking about; my business will never be mature so I will stay an LLC for now and forever. Realistically, if I were making $100,000 a year, it wouldn't bother me one bit to pay the taxes. However, that is never going to happen. Quote Link to comment Share on other sites More sharing options...
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