MN-Hus/Wife LLC-Sched C or 1065?

[Beth]

I have a client who informed me that she and her husband formed an LLC in MN this past year where they started a small side business.They ar the only owners and both maintain their FT "day jobs". Profits from the business are around $7600

The federal guidleines say a 1065 should be used for LLC businesses, but the guidelines also say that a husband/wofe business can use a Sched C (each with their share), starting in 2007.

I can find nothing in the regs that says a 1065 is required, and I have no idea yet what MN requires in this case.

Could someone please provide me some insight or adivse as to what you would do.

Thank you!

[Jesse]

The federal guidleines say a 1065 should be used for LLC businesses, but the guidelines also say that a husband/wofe business can use a Sched C (each with their share), starting in 2007.

Could someone please provide me some insight or adivse as to what you would do.

Thank you!

My initial response was that schedule C's can only be done in a community propety state.

However I grabbed my handy Small Business Tax book and on page SB4-3 it states that generally Form 1065 must be filed, however, "Beginning in 2007, if a H & W materially participate as the only members of a jointly owned and operated business, and they file a joint return for the tax year, they can elect to be treated as a qualified joint venture instead of a p-ship." It continues in what a qualified joint venture is.

Maybe someone else can verify if this would include LLC's?

[kavrev]

If you click on this link, it will take you IRS page that states husband and wife llcs are excluded from this exception.

http://www.irs.gov/businesses/small/article/0,,id=177376,00.html

Hope this helps.

[Kram BergGold]

Agree and disagree

There seems to be a rule that a H and W LLC's are excluded from the two Schedule C approach for H and W joint businesses. However, I would file two Schedule C's under the the 10 and under partners rule.

Mark Goldberg

[Beth]

MN-Hus/Wife LLC-Sched C or 1065?

Can you expand on what the "10 and under partners rule" is? I have not doen partnership retunrs before an dma not familiar with this...

Also, does anyone know what Minnesota reequires here?

[Gretel]

The "Rule" refers to not having to pay a penalty if the partnership has less than 10 partners and if all income and expenses are recorded the same as IF a 1065 was filed. I would not do this.

Also keep in mind that they probably formed the LLC for liability purposes. I am sure a lawyer would have an easy catch if they disregard the LLC and just file Sch. C's.

[Bees Knees]

My initial response was that schedule C's can only be done in a community propety state.

However I grabbed my handy Small Business Tax book and on page SB4-3 it states that generally Form 1065 must be filed, however, "Beginning in 2007, if a H & W materially participate as the only members of a jointly owned and operated business, and they file a joint return for the tax year, they can elect to be treated as a qualified joint venture instead of a p-ship." It continues in what a qualified joint venture is.

Maybe someone else can verify if this would include LLC's?

Page SB4-3 says nothing about the case of an LLC made up of a husband and wife.

Page 5-7 of the 1040 edition says:

Husband and wife LLC. The IRS has taken the position on their
website that a husband and wife unincorporated business organized
as an LLC may not make the election to file as a qualified
joint venture.

The IRS provides no citation for this position. Its just their opinion.