Llc 1st Year - Help Help!!!

[karen]

My first partnership return and I need help.
New business in 2006 - 2 person LLC formed in Feb 06 - both are active and had guaranteed payments - hired part time employee in March 06 - 8 months worth of rent, salary, office supplies, buying equipment, etc. - audit done for accrediation (it's a testing lab) There were no sales (income) in 2006 thus the business is showing $175K loss.
Audit was in August, Accrediation received in Sept

Q 1 On the 1065 "date business started" would it be Feb 06 or Sept 06 after accrediation due to the fact that's when they could start performing tests (if they had orders)? OR

is the business operations considered not started until they have income which wasn't until 2007? I feel it began functioning as a going concern in Sept

Q3 Would the salary, supplies, rental all be considered organizational costs?

Q4 If it's deemed business did not begin in 2006, then no 1065 would need to be filed but how would the W-2 and quaranteed payments to the partners be reported at the business level for Federal and State purposes in 2006?

Q3 I believe on the K-1 would I check them both as general partners . Agree?

Thanks you very much for your knowledge.

[Snaggletooth]

Lots of Questions

Lots of them but I will give very quick answers in an attempt to generate discussion.

1. Date business started is really Feb 1. Accretidation is something more meaningful to their vocation than it is to IRS or entity structure.

2. Most operational expenses prior to the functional beginning of business should be classified as an intangle asset - "Start-Up Costs" on the balance sheet. That means they are not deductable during 2006. The "functional beginning" can vary from company to company depending on what they do, so I won't bog down the conversation with this. But you need to research and define a date that operations really began. Recognition of revenue is often used but in my opinion business really begins before then.

3. Salary, supplies, etc. are not organization costs, but can be "start-up costs" as discussed above. "Organizational costs" are yet another intangible asset and refers to those costs incurred in the establishment of the entity, rather than launching operations.
This is commonly lawyer fees, drawing up by-laws, registration with the state, etc. prior to or concurrent with the inception of the entity itself.

4. A 1065 must be filed regardless of whether the business is out of start-up mode or not. There MUST be a balance sheet, irrespective of income, and there should be some expenses even though the bulk of them are not deducted because of start-up mode. The entity must issue W-2s and K-2s to employees/partners whether deductible or not.

5. From what you have told us, both partners are general partners.

Karen, please don't take this the wrong way, but you should find someone in your area willing to be "big brother" for your first return, even if you have to pay him/her for advice.
Your client doesn't have to know. I don't think those of us on the board, willing though we may be, are going to have the specific grasp of your client to be able to help you except in very general terms. Good luck, and keep asking your questions, though.

[erchess]

For Openers,

if the firm truly is an LLC, does it not have the options of taxing itself as a C Corp or S Corp? And if it were a single owner LLC would it not have the further option of taxing itself as a Sole Proprietorship?

Since I began doing entities other than individuals I have not had an LLC inquire about my services. Were one to do so, I would not take it on as a client unless I had a signed opinion from a tax lawyer (presumably the one who incorporated them) as to which form they should elect. I do not feel competent to advise a client on that, so I don't.

[S T]

Check the paper work

Besides the Articles of Organization or Incorporation or a Partnership 'agreement , you can also look at the SS-4 to see what box they checked when filing for their EIN#. Subsequent to that there should be an acknowledgment letter from the IRS, stating what form/forms they expect the taxpayer to file and the due date of the first return. I always request any and all of the above.

Based on what Karen is providing in her post, it would seem to be a partnership, form 1065, but then she will have to delve deeper into the paperwork to make sure.

I would think that the business started would be Feb as referred to in another post, or the date the employee was hired. I hope payroll tax returns were also filed for the employee. But as someone pointed out on another post, look to the paperwork.

TB page 8-17 - 8-18 has some good information regarding organizational and Start Up costs. Also see chapter 20 for partnership and LLC's A lot of good information.

Sandy

[jainen]

a different take

>>an attempt to generate discussion<<

I have a different take on the first day of business. Accreditation might not be meaningful to their "entity structure," but it's the key to a testing lab. They can't open their doors without it, and it is significant to note that they DIDN'T open their doors. So I say that all the operational costs before September -- rent, salaries, supplies -- must be capitalized as startup expenses. The equipment can be depreciated when placed in service (start of business).

[karen]

LLC question for Jainen

Ist thanks to all that replied.

The business does have the Fed ID and is truely being taxed as a partnersheip.

The accrediated is important and that's why I questioned the start date.

Jainen you are right about the accrediation and that was my concern about the start date. But if wages are reported as start up costs for the period before accrediation - wouldn't IRS have problems not matching W-2 and payroll taxes filed againt the 1065.

Does anyone know of a good partnership tax workshop courses. I have been unsuccessful in finding one.

Again thanks for all your help.

[lbbwest]

No

wouldn't IRS have problems not matching W-2 and payroll taxes filed againt the 1065."

The Social Security Administration matches the W2s to the IRS four quarters 941, they don't look at the 1065.

[Davc]

>>an attempt to generate discussion<<

I have a different take on the first day of business. Accreditation might not be meaningful to their "entity structure," but it's the key to a testing lab. They can't open their doors without it, and it is significant to note that they DIDN'T open their doors. So I say that all the operational costs before September -- rent, salaries, supplies -- must be capitalized as startup expenses. The equipment can be depreciated when placed in service (start of business).

Agree.

Cheney for President in '08! We need a man who's serious about legal reform.