Form 1065 Or Sch C

[cpeters]

Got a late filer with an extension.....a Limited Liability Company........with articles of organization showing a Single Member LLC, Husband & Wife.

The manual tells me that this return should be filed using Sch C since it is a Single Member...............and not Form 1065.

Would appreciate any additional info and confirmation that I am understanding correctly.

Thanks a lot.

Charles

[Black Bart]

C or 1065?

Uh...Armando -- are you anywhere around? It's a "C" in my view, but since there's a wife involved, there's more than a fair chance that you could make her a co-conspirator and thus compel a 1065 (back to my partnership lemonade stand again).

Care to weigh-in?

[Bees Knees]

In this case, you want to protect your limited liability status under the rules for the state the LLC was organized under. If the state documents are in the name of just the husband, then a Schedule C would be appropriate. If the documents list both the husband and wife as LLC members, I would tend to say this is a 1065 situation. Otherwise, I would worry that the LLC status at the state level could be voided.

[Armando Beaujolais]

Husband + wife = single owner.

There's something wrong with that equation.

You need to determine whether it's a single owner or not. If the husband and wife own the LLC, it's not a single owner.

If it's owned by the husband only, it's Schedule C.

If it's owned by the husband and wife, then we'll all argue about whether you can pretend it's not a partnership and file two Schedule C's, or whether you should file it correctly and prepare Form 1065.

[KJ Judd]

Depends what state you're in. Wisconsin is a marital property state, so 1+1 = 1. A husband and wife in an LLC are still considered a single member LLC and all you need to file is Sch. C.

[Black Bart]

1 + 1 = 1 in Wisconsin?

Depends what state you're in. Wisconsin is a marital property state, so 1+1 = 1. A husband and wife in an LLC are still considered a single member LLC and all you need to file is Sch. C.

Their politicians musta eaten some fermented cheese.

[JoshinNC]

Pub 541 says:

"Community property. A husband and wife who own a qualified entity (defined later) can choose to classify the entity as a partnership for federal tax purposes by filing the appropriate partnership tax returns. They can choose to classify the entity as a sole proprietorship by filing a Schedule C (Form 1040) listing one spouse as the sole proprietor. A change in reporting position will be treated for federal tax purposes as a conversion of the entity.

A qualified entity is a business entity that meets all the following requirements.
The business entity is wholly owned by a husband and wife as community property under the laws of a state, a foreign country, or a possession of the United States.

No person other than one or both spouses would be considered an owner for federal tax purposes.

The business entity is not treated as a corporation.


For more information about community property, see Publication 555, Community Property. Publication 555 discusses the community property laws of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin."

So, if you live in one of the states referenced than it can be a sole proprietership, otherwise it's a partnership, requiring a 1065, unless an election is made to be taxed as a corporation.

[cpeters]

1065 or Sch C

Hey fellows, just got a little more information. Have obtained a copy of the Articles of Organization and Exhibit A To The Operating Agreement shows the name of the husband and wife with membership interest of 100% and states ("husband & wife, single member"). This was written by a local attorney in the year 2001. Does this help in determining if the tax return can be filed using Schedule C?

Really appreciate ya'lls help!

[Black Bart]

I don't think it helps much, except

to prove once again that, as a general rule, attorneys know absolutely nothing (and care even less) about taxes. I'd say he made that up on the spot as he was dictating or typing.

That aside, I'd just do whatever I wanted to do - it'll fly either way.

[JoshinNC]

I agree with BB,

but, it technically should be a 1065, since they don't live in a community property state.

Just think, it's more revenue for you!

[cpeters]

cpeters

Well brothers....................made a decision...............going with Form 1065. Thanks for all your responses and help!!

[Black Bart]

Splendid, my son, splendid.

The reward for your virtue is that you are now virtuous. I believe I speak for all when I say that you have the best wishes, if not the agreement, of our entire tax "family" on your decision.

If you later encounter problems as a result, please be comforted in the knowledge that our board co-captain, the Minnesota maven, aka Armando Beaujolais, will defend your position to the death (or, to the Supreme Court at the very least).

[cpeters]

cpeters

Thanks for the help! Now here's more. The principals have paid their children several thousand dollars for the work they performed for the LLC.

What's the limit, if any, that they can be paid? Seems to me there should be some limit but I can't find that in the manual.

[Armando Beaujolais]

Thanks for the help! Now here's more. The principals have paid their children several thousand dollars for the work they performed for the LLC.

What's the limit, if any, that they can be paid? Seems to me there should be some limit but I can't find that in the manual.

That's not a problem assuming the children were paid reasonable wages for work actually performed.

Employing family members can be a legitimate tax-shifting strategy. See page 23-6 of TheTaxBook.

You run into problems when you see a three-year-old child being paid thousands of dollars for "bookkeeping and general office duties."

To be "reasonable," the wages have to be defended in the context of what would be paid to an outside party in an arms-length transaction.