Sch C / Single Member LLC

[taxdan]

Hello All,

Since I am not very familiar with single member LLCs, I have a question about filing a sch C.

I know that a different sch C needs to be filed for each type of business a taxpayer does, but if we're filing the sch C under the single member LLC and there are multiple "types of work" being done under the LLC name, do I still file multiple sch Cs?

Sorry for the silly question.

Thanks!

Dan

[michaelmars]

one llc=1 sch c

2 llc= 2 sch c

etc

[RoyDaleOne]

If investment or rental does not go on Schedule C.

[Linda]

Not silly question, been at this for 32 years, and still have to stop and look up some very basic things. Gee, do you think being very tired has anything to do with it?

One LLC can umbrella various business activites, so you should only need one Schedule C for the LLC.

[jainen]

>>One LLC can umbrella various business activites, so you should only need one Schedule C for the LLC<<

The LLC entity is disregarded for tax purposes, so you have to report in the same way an individual would. A separate business requires a separate Schedule C. Although you can sometimes combine similar activities or include de minimus activity in another, you must not do it in a way that violates passive loss rules or affects benefits that depend on net income, such as office in home or hobby loss.

[taxdan]

Thank you all very much for your responses. This is a new client this year.

This guy is doing three business activities under the LLC name that are very different.

1. Vending machine business (new business in 2007)

2. Buys and resells shoes (new business in 2007)

3. Attempting to "flip" properties. Good luck with that one. I know this can go on sch D if no work is actually done by the client other than buying and selling. Unfortunately, this guy got taken and had to convert to rental to make a few bucks while he tries to dump the property. I am using sch E for the income/expenses and will use the 4797 if he's ever lucky enough to sell.

I think I should file separate sch Cs for jobs 1 and 2 to be on the safe side. For the "flipping props" business in 2006 the last tax preparer filed a sch C under the LLC, calling the type of business "investments", and deducted...well let me explain...

My client gave some character $10K as a form of "broker" that was supposed to go toward the property and the guy just takes off with his money. Not sure the particulars yet, such as what paperwork was involved (if any). The last preparer amortized the $10,000 over 5 years as "start up expenses". Yes, I know there are so many things wrong with that. Does anyone know how/if this can be written off properly...depending on what (if any) paper trail was involved? I don't want to just continue amortizing that...especially on a sch C with no other expenses or income.

Yes, again it's late and I'm tired and I'm going to charge this guy plenty.

[OldJack]

A separate business requires a separate Schedule C. Although you can sometimes combine similar activities or include de minimus activity in another, you must not do it in a way that violates passive loss rules or affects benefits that depend on net income, such as office in home or hobby loss.

I completely agree with not violating the passive loss rules and the requirement that passive loss activities must not be combined with active activities. However, I generally disagree that multiple proprietorship business activities cannot be treated, reported, and in fact operated as one business. The IRS has no authority to tell a business owner what activities his business cannot conduct or how he conducts them.

The 3 business activities mentioned in the original post appear to be legal activities that could be conducted in one business entity of any tax type. That is not to say that the owner should be using only one business entity since there are other reasons not to, but for tax purposes there is no reason that he can't.

[michaelmars]

you are violating the very reason of forming an llc, to shield the entities activities from your other activities and assets. 3 llc's should go on 3 sch c and have 3 bank accts, books etc. NO comingling or you might as well not have the LLC andjust operate as a sch c. if the 3 activities are out of 1 llc then you should probably have 1 sch c but that is dumb. the whole point of an llc is asset protection.

[jainen]

>>the whole point of an llc is asset protection<<

That is the theory, but quite a few people have other ideas. Mostly they seem to be vanity entities which either have no significant assets to protect or are operated with such carelessness that personal assets are compromised anyway.

You find similar financial theories where a couple shells out 1% of their entire net worth to set up an A/B trust or puts volatile stocks in an IRA.

[OldJack]

you are violating the very reason of forming an llc, to shield the entities activities from your other activities and assets. 3 llc's should go on 3 sch c and have 3 bank accts, books etc. NO comingling or you might as well not have the LLC andjust operate as a sch c. if the 3 activities are out of 1 llc then you should probably have 1 sch c but that is dumb. the whole point of an llc is asset protection.

I agree

[lbbwest]

I agree

I should write it on the calendar, jainen, lbb, & OldJack agree to agree. lbb

[BulldogTom]

I should write it on the calendar, jainen, lbb, & OldJack agree to agree. lbb

Get down on your knees and start praying because this is surely a sign that Armaggedon is here. The end is near.

Tom

Lodi, CA

[jainen]

>>The end is near<<

I'm not worried. I set up three separate entities (Wine.LLC, Women.LLC, and Song.LLC) to handle all my bad habit activities. I'm very careful not to have personal responsibility for any of that.

[lbbwest]

>>The end is near<<

I'm not worried. I set up three separate entities (Wine.LLC, Women.LLC, and Song.LLC) to handle all my bad habit activities. I'm very careful not to have personal responsibility for any of that.

Wasn't it one of the old time baseball players who said something like "I spent the money wisely, on wine, women, and song. I wasted the rest." ????

[DANRVAN]

>>The end is near<<

I'm not worried. I set up three separate entities (Wine.LLC, Women.LLC, and Song.LLC) to handle all my bad habit activities. I'm very careful not to have personal responsibility for any of that.

And you certainty would not commingle those activities.

[lbbwest]

And you certainty would not commingle those activities.

What bars do you go to? I thought commingling was mandatory.

[OldJack]

You are never to old to commingle!

[jainen]

>>You are never to old to commingle!<<

A very old guy named Kris Kringle

Went in to a bar to commingle.

After a while

a lady did smile,

Which caused him all over to tingle.

[Randall]

All the frivolity aside, this illustrates a point I've wondered about. How does anyone really separate themselves and personal assets from their business LLC and the business assets. It has always seemed to me that if someone were sued, they would sue both the LLC and the individual and how could one defend themselves from this even if they had dotted all the i-s and crossed all the t-s.

[jainen]

>>they would sue both the LLC and the individual <<

Of course they would. And frankly, the individual probably IS responsible in a single-member LLC. You can't escape the consequences of your OWN negligence.

But if an employee or a subcontractor causes the damage, or a customer falls down or there is a flaw in a product or service, the owner might not be liable if he took ordinary care and had maintained the LLC as a separate entity. That's why having a separate bank account with formal draws is so important. Don't pay personal bills directly from it, don't accept payment in your own name. Title is just as important. Don't buy the truck on your own credit, even if you could get a better deal. It's bad enough that you tell the IRS your business is NOT a separate entity. For heaven's sake at least don't run it out of your spare bedroom. Keep the business assets separate.

Since LLC is a simplified format, owners tend to get sloppy about it. For example, they don't keep minutes of shareholder meetings and other normal business records. These are well-established issues for corporations. There isn't much case law to support the liability shield for an LLC, so a lot more risk falls on the owner who doesn't take extra precautions.

[BulldogTom]

All the frivolity aside, this illustrates a point I've wondered about. How does anyone really separate themselves and personal assets from their business LLC and the business assets. It has always seemed to me that if someone were sued, they would sue both the LLC and the individual and how could one defend themselves from this even if they had dotted all the i-s and crossed all the t-s.

This just happened a few weeks ago, and might be the answer you are looking for.

Client has a Sch C trucking business. Asks what he should do about LLC/Corp/S Corp. He is planning to hire drivers and buy more trucks. We started talking about liability.

What happens if he falls asleep at the wheel and takes out a bus full of kids? Everything he has is at risk regardless of entity choice.

What happens if one of his drivers falls asleep at the wheel and takes out a bus full of kids? IF he has not pierced the veil and has done his due diligence in hiring and training (per the standards of his industry, state, etc), his business assets are all at risk, but his personal assets are not if he has an LLC or Corp. Not so if he has a Sch. C.

It is not pleasant to talk about taking out a bus full of kids, but it makes the point, because everyone know that if your business hurts a kid, you need a lawyer.

It also leads to the discussion about how much insurance you need.

I firmly believe that a successful business will have 3 main advisors: Accountant/Tax advisor, Insurance Agent, Lawyer. In the above example, he needs all three.

Tom

Lodi, CA

[jainen]

>>how much insurance you need<<

Of the three advisors, this is #1. If "one of his drivers falls asleep at the wheel and takes out a bus full of kids," the standards of his industry aren't going to be that much help.

[Randall]

>>how much insurance you need<<

Of the three advisors, this is #1. If "one of his drivers falls asleep at the wheel and takes out a bus full of kids," the standards of his industry aren't going to be that much help.

I agree. He needs insurance. You never know what may happen and even doing everything according to Hoyle, you're still vulnerable. A news story around here a few years ago (nothing to do with business or entity choice) was a child drowned in a neighborhood water drain opening during a storm. The opening had a grate over it, but it apparently was not enough. The lawsuit was against the builders, etc. But the kicker was that all homeowners within a certain radius of the location were also included in the lawsuit and the judge allowed them to be included.