mwpope Posted May 30, 2009 Report Share Posted May 30, 2009 Does the IRS prescribe the expected tax form when assigning an EIN to an LLC? I have a new client that is an auto mechanic. He has an 1120S for his automotive repair services but set up his $300K building under a separate LLC. From what I have read, single member LLC's should be on a schedule C. He does not pay rent to himself so it would only be depreciation expense on the Sch C, thus no self employment. What is the proper way to report these transactions? Thanks for your help. Mike Quote Link to comment Share on other sites More sharing options...
taxtrio Posted May 30, 2009 Report Share Posted May 30, 2009 Single Member LLC can be treated as a S-Corp if that is the choice of the taxpayer, or it can be treated as a "disregarded entity" then it would be a schedule C. Taxtrio Quote Link to comment Share on other sites More sharing options...
Lion EA Posted May 30, 2009 Report Share Posted May 30, 2009 It would be whatever it would be disregarding the LLC and reporting as an individual would on his Form 1040. Sounds like a Schedule E. Why doesn't the S-corporation pay rent? Quote Link to comment Share on other sites More sharing options...
mwpope Posted May 30, 2009 Author Report Share Posted May 30, 2009 It would be whatever it would be disregarding the LLC and reporting as an individual would on his Form 1040. Sounds like a Schedule E. Why doesn't the S-corporation pay rent? The owner started his own business in Oct 2007, had an attorney set up an S-corp for his repair business and a separate LLC for the building. He had H&R Block prepared his 2007 return. He came to me late in April 2009 since he is a neighbor. I advised him that if he had a separate LLC for his business with a different EIN, he should not report the building on the same tax return as his repair business. He therefore does not pay rent because he would just be paying it to himself. It can be structured, however for that way in 2009. Quote Link to comment Share on other sites More sharing options...
DevM Posted May 30, 2009 Report Share Posted May 30, 2009 The owner started his own business in Oct 2007, had an attorney set up an S-corp for his repair business and a separate LLC for the building. He had H&R Block prepared his 2007 return. He came to me late in April 2009 since he is a neighbor. I advised him that if he had a separate LLC for his business with a different EIN, he should not report the building on the same tax return as his repair business. He therefore does not pay rent because he would just be paying it to himself. It can be structured, however for that way in 2009. I see this as 3 different entities. S Corp should pay rent to LLC even though he owns both. If LLC has a different EIN it should shouw on Sch E. He should Expense the RENT in S Corp and needs to show Rental Income on Sch E. Devm Quote Link to comment Share on other sites More sharing options...
jainen Posted May 30, 2009 Report Share Posted May 30, 2009 >>a schedule C... a Schedule E<< Apparently this property is not held by the owner for productive use in a trade or business or for the production of income. Investment expenses (which can not include depreciation) go on Schedule A. Perhaps this arrangement is some kind of shareholder contribution to the company. I must assume that a liability shield was not one of the reasons for incorporating. Quote Link to comment Share on other sites More sharing options...
RoyDaleOne Posted June 2, 2009 Report Share Posted June 2, 2009 Investment expenses (which can not include depreciation) does this mean investment property can not be depreciated? See the instructions to Form 4562 Page 1. Quote Link to comment Share on other sites More sharing options...
jainen Posted June 4, 2009 Report Share Posted June 4, 2009 >>does this mean investment property can not be depreciated?<< As I said in the sentence immediately leading in to the one you quoted, only property for productive use in a trade or business or for the production of income is subject to depreciation. That can include "investment" property such as rentals in the sense of ordinary income rather than capital gains. Even in that case, depreciation is not an investment expense but an operational expense related to the production of income. Quote Link to comment Share on other sites More sharing options...
RoyDaleOne Posted June 4, 2009 Report Share Posted June 4, 2009 Ok, no problem, it must be a case of semantics, "Investment expenses are deductible expenses, other than interest, directly connected with the production of investment income. Code Section 163(d)(4)©. If depreciation or depletion deductions are allowed with respect to assets that produce investment income, investment expense must be determined using the actual depreciation or depletion deductions allowable." Staff on the Joint Committee on Taxation, General Explanation of the Tax Reform Act 1986, at 265 Regs Sec 1.280F-6 "(3) BUSINESS/INVESTMENT USE-- (i) IN GENERAL. The term "business/investment use" means the total business or investment use of listed property that may be taken into account for purposes of computing (without regard to section 280F() the percentage of cost recovery deduction for a passenger automobile or other listed property for the taxable year. I guess. Quote Link to comment Share on other sites More sharing options...
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