LLC, Husband & Wife

[geekgirldany]

I am wanting to double check my thinking here.

Husband and wife LLC. Running a business. Wife does not participate but is a member. Does there not have to be an election to be a partnership or a s-corporation?

Explanation below why I want to know this:

Just got off the phone with a potential client. Husband and wife LLC and wanting to do payroll. Business will start in July but LLC has been registered since 2006.

Okay while talking I told him since his wife was listed as a member on the LLC there will have to be an election made to either be a partnership or a s-corporation.

He said he talked to four other accountants and I was the first one to mention this. I told him this is how I have always advised in regards to an LLC with more than one member unless it is rental property only.

He went on to tell me what the other 4 accountants said. Something about he could do either payroll or 1099. I asked if they said anything about filing a separate return. He said no. I tried to explain that you can not do a payroll with a schedule C.

I told him I would be glad to meet with him to explain it further. He just kept on saying what the other four said. I told him I appreciated him calling, he got my rates, and then hung up.

If people have already called other accountants and get the answer they want... why do they keep calling around?

[PIGLEE]

I always ask for the letter from IRS, giving them their EIN #. It will tell on that letter what forms need to be filed. It will tell you if it is a Sold P, Partnership, or a C or S Corp. Without that letter, you have no idea what to file, or if payroll is involved.

[BOB W]

An LLC with 2 or more members is automatically a partnership. An election needs to be made to be something other than a partnership.

An LLC the has one member is automatically a sole proprietor and has to elect to be something else.

In both cases there is no payroll for the members. Guaranteed Payments is the only way they get paid a salary. Net profits are disbursed based on economic reality. Most cases disbursements are in line with ownership of capital or any other written agreement.

[ChEAr$]

Since business has not yet commenced, I'm betting nothing has been done vis a vis
IRS. IOW, no elections have been made. THEREfore, the LLC is automatically already slated to be taxed as a partnership.

anyway, 1099's are out of the question.

For your first meeting with client, insist on his bringing a copy of the Operating agreement for the LLC, along with the official acceptance by GA Sec of State for the LLC. You will need a copy of these for your records, should you decide to take him on as a client.

[geekgirldany]

thank you all for responding.
I just wanted to make sure I did not miss some new law in regards to LLCs and husband/wife members. Looks like I have not.

Harlan you are right nothing has been filed with the IRS in regards to the election. Anytime I get a new client I tell them to bring everything they have filed related to the LLC or Corps.

This fellow seemed to think I was wrong and the other four accountants were right. Either they did not question him further, he did not give them all the information I asked, or he just did not know.

Again I appreciate the back up

[BOB W]

I am wanting to double check my thinking here.

Husband and wife LLC. Running a business. Wife does not participate but is a member. Does there not have to be an election to be a partnership or a s-corporation?

Explanation below why I want to know this:

Just got off the phone with a potential client. Husband and wife LLC and wanting to do payroll. Business will start in July but LLC has been registered since 2006.

Okay while talking I told him since his wife was listed as a member on the LLC there will have to be an election made to either be a partnership or a s-corporation.

He said he talked to four other accountants and I was the first one to mention this. I told him this is how I have always advised in regards to an LLC with more than one member unless it is rental property only.

He went on to tell me what the other 4 accountants said. Something about he could do either payroll or 1099. I asked if they said anything about filing a separate return. He said no. I tried to explain that you can not do a payroll with a schedule C.

I told him I would be glad to meet with him to explain it further. He just kept on saying what the other four said. I told him I appreciated him calling, he got my rates, and then hung up.

If people have already called other accountants and get the answer they want... why do they keep calling around?

I'm confused with your reply indicating that you understand what our response to your questions were.

There is NO requirement to elect to be a partnership, for one.....You said there IS requirement to ELECT to be a partnership?????

What was also not mentioned is that the LLC may not be a valid LLC any longer due to the NON-FILING for so many years...????

[ChEAr$]

What was also not mentioned is that the LLC may not be a valid LLC any longer due to the NON-FILING for so many years...????

That is certainly a valid point, Bob. Danny did say that "but LLC has been registered since 2006". The problem may then be is the LLC still active with the state of Georgia. A check with Secretary of state web site will confirm or deny this.

Danny, IF the LLC has lapsed, it will probably be best to start over with a fresh LLC, which can probably be done online by the couple, with your help of course, thus cutting out the middleman (lawyer!). then, go from there.

[geekgirldany]

I'm confused with your reply indicating that you understand what our response to your questions were.

There is NO requirement to elect to be a partnership, for one.....You said there IS requirement to ELECT to be a partnership?????

What was also not mentioned is that the LLC may not be a valid LLC any longer due to the NON-FILING for so many years...????

I understand and appreciate what was posted.

I said "election to be partnership or s-corporation" incorrectly in my original post.

Also in response to Harlan I was just saying that no election had been filed with the IRS saying to be other than partnership.

He got the LLC back in 2006 because did not want to lose the name. So I assume he kept it up.

I just wanted to make sure I was not missing something in regards to a husband/wife in a LLC.

[Bees Knees]

Just got off the phone with a potential client. Husband and wife LLC and wanting to do payroll. Business will start in July but LLC has been registered since 2006.

Okay while talking I told him since his wife was listed as a member on the LLC there will have to be an election made to either be a partnership or a s-corporation.

He said he talked to four other accountants and I was the first one to mention this. I told him this is how I have always advised in regards to an LLC with more than one member unless it is rental property only.

He went on to tell me what the other 4 accountants said. Something about he could do either payroll or 1099. I asked if they said anything about filing a separate return. He said no. I tried to explain that you can not do a payroll with a schedule C.

Here are my observations:

1) When you say they want to do payroll, I am assuming you mean they want to pay themselves through payroll. Obviously a Schedule C business can have payroll for other employees, including the spouse of the sole proprietor.

2) As you acknowledged in another post, a two member LLC does not elect to be a partnership. It is automatically a partnership, unless there is an election to be taxed as a corporation.

3) The other four accountants could be taking a position contrary to the unofficial IRS website on the partnership issue for husband and wife LLCs. A husband and wife business can elect to be a qualified joint venture and not file as a partnership. As you know, a qualified joint venture files two schedule Cs, one for the husband and one for the wife. The only place that says a husband and wife LLC cannot elect to be a qualified joint venture is the unofficial IRS website that makes this claim. Although they are probably correct, I do not believe the law itself directly says this. Thus, the other four accountants could be taking the position that a husband and wife LLC can still elect to be a qualified joint venture as there is no law that says they can’t. Or, maybe they were not told by the client that there was a valid LLC filing for the business. Or, maybe they are taking the position that the husband and wife operate this new business separate from the LLC. Whatever the case may be, you cannot automatically assume the client told the other four accountants everything he/she told you, and you cannot automatically assume everything they told the client, the client in turn told you.

4) Very few accountants would ever be so off base as to think they can pay the owners of a business on a 1099. To have all 4 say the same thing is ridiculous. Your client is obviously hearing something different than what they actually said.

[LCP]

An LLC with 2 or more members is automatically a partnership. An election needs to be made to be something other than a partnership.

An LLC the has one member is automatically a sole proprietor and has to elect to be something else.

In both cases there is no payroll for the members. Guaranteed Payments is the only way they get paid a salary. Net profits are disbursed based on economic reality. Most cases disbursements are in line with ownership of capital or any other written agreement.

May not apply to this scenario but just checking............... an election to be teated as a corp. would then allow an LLC to put the owners on payroll.....correct??

[BOB W]

May not apply to this scenario but just checking............... an election to be teated as a corp. would then allow an LLC to put the owners on payroll.....correct??

That is correct because now their structure is a corporation.

[Gretel]

That is certainly a valid point, Bob. Danny did say that "but LLC has been registered since 2006". The problem may then be is the LLC still active with the state of Georgia. A check with Secretary of state web site will confirm or deny this.

Danny, IF the LLC has lapsed, it will probably be best to start over with a fresh LLC, which can probably be done online by the couple, with your help of course, thus cutting out the middleman (lawyer!). then, go from there.

This, by the way, is a very important point. Never, ever to a tax return for an entity without checking the SOS website for current status. I mean, you cannot file a tax return for an entity that doesn't exist in the first place, right?

[ChEAr$]

This, by the way, is a very important point. Never, ever to a tax return for an entity without checking the SOS website for current status. I mean, you cannot file a tax return for an entity that doesn't exist in the first place, right?

Wie immer, du hast rechts, liebchen!

Hansel

[Gretel]

Wie immer, du hast rechts, liebchen!

Hansel

Besser rechts, als links. Better yet: Hab' das Herz auf dem rechten Fleck.

[Gretel]

Wie immer, du hast rechts, liebchen!

Hansel

Besser rechts, als links. Better yet: Hab' das Herz auf dem rechten Fleck.