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Edsel

LLC Reporting

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Some people should never create an LLC.

My client has just created one at the urging of lawyers (of course).  Electing to report as a proprietorship will subject the taxpayer to SE tax, but:

The only activity within the LLC is the existence of Receivables on Installment sales.  Income is:  (i) Interest on Loans and (ii) Installment Sale Capital Gains.  Neither of these activities without other circumstances are subject to SE tax.

Reporting as a proprietorship, Sch C, is not tailored to report this kind of income, but is tailored to create SE tax.

Can the LLC be reported in some manner other than a Sch C?  (Assume the LLC is defaulted to report as a proprietorship).

 

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If all it is reporting is interest income & capital gains I don't know why anybody would suggest to float an LLC. I would continue to report as I normally would report on Sch B & D & would report $ 1 income on Sch C LLC (just to be complying with filing requirements for LLC)

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2 hours ago, Edsel said:

Some people should never create an LLC.

My client has just created one at the urging of lawyers (of course).  Electing to report as a proprietorship will subject the taxpayer to SE tax, but:

The only activity within the LLC is the existence of Receivables on Installment sales.  Income is:  (i) Interest on Loans and (ii) Installment Sale Capital Gains.  Neither of these activities without other circumstances are subject to SE tax.

Reporting as a proprietorship, Sch C, is not tailored to report this kind of income, but is tailored to create SE tax.

Can the LLC be reported in some manner other than a Sch C?  (Assume the LLC is defaulted to report as a proprietorship).

 

Put it on the client to find a solution via the attorneys.

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3 hours ago, Edsel said:

The only activity within the LLC is the existence of Receivables on Installment sales.  Income is:  (i) Interest on Loans and (ii) Installment Sale Capital Gains.  Neither of these activities without other circumstances are subject to SE tax.

Whether or not the income is subject to SE tax depends on if this is considered trade or business income in the regular course of this entities business.

What type of business is this?

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2 hours ago, Abby Normal said:

LLCs do not default to Sch C. I have plenty on Sch E. They are simply disregarded for tax purposes.

I learn something new every day. Every. Day. 

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3 hours ago, jklcpa said:

Whether or not the income is subject to SE tax depends on if this is considered trade or business income in the regular course of this entities business.

What type of business is this?

I think you've put your finger on what I consider to be a threat.

There are a dozen or so receivables set up when land was sold on installments.  My fear is that this would be considered an operating business instead of investments resulting in interest and capital gains.  This could be recharacterized as a Sch C business, and not only subject it to SE tax, but also loss of capital gain treatment.

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On ‎7‎/‎11‎/‎2018 at 11:38 AM, mircpa said:

If all it is reporting is interest income & capital gains I don't know why anybody would suggest to float an LLC. I would continue to report as I normally would report on Sch B & D & would report $ 1 income on Sch C LLC (just to be complying with filing requirements for LLC)

I agree. A single member LLC can be considered a disregarded entity thus the Sch C. However, I don't understand the rationale either. Also, wondering about Judy's response as well. What is the nature of this business?

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The nature of the income determines the tax treatment.  Whether the client is in an ordinary business or is an investor should have been determined when he first began reporting.  Limited Liability Companies are just legal entities.  LLC does not automatically equate to the tax requirement of a Sch C.  I have lots of rentals reported by LLCs on Sch E.  

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