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What return to file? LLC 1065 or 1120S

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    #1

    What return to file? LLC 1065 or 1120S

    Client and friend created an LLC for a job coaching endeavor.

    I am not sure how to file the first return. My instinct is to file as a partnership on the 1065. Is there a source or can anyone help me brainstorm whether the 1065 is the best filing structure or if they should elect to file as an S corp?

    Thanks again for all your help.
    Tags: None
    #2
    Either way has unique advantages and disadvantages. I tend to encourage clients to stick with a 1065 as an LLC. The main reason is I don’t think most people want to have to deal with payroll issues, as would be required with an 1120S. Now that LLC 1065 returns are not subject to SE tax on the K-1 line 1 profits, I don’t see any real advantage to making them go through all the payroll hassles. Plus, the 1065 is much more flexible with special allocations. There is no worry over a 2nd class of stock. For example, the guy who put up most of the money to begin with could be the first to get his investment back. Then they go 50/50 after all the money is even. You can’t do that with an 1120S without creating a 2nd class of stock.

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      #3
      Entity Election

      This is kind of a minefield...

      Why did this guy create an LLC to begin with? Did he get advice from some website somewhere, or from an accountant, or from an attorney?

      Is it a single-member LLC? If it's a single-member LLC, I'm not sure it can be a partnership for tax purposes. I suppose, in theory, you could have a partnership with only one partner. But why would anyone want to do that?

      A single-member LLC defaults to a sole proprietorship unless an election is made to make it something else.

      More to follow on this...
      Burton M. Koss
      koss@usakoss.net

      ____________________________________
      The map is not the territory...
      and the instruction book is not the process.

      Comment

        #4
        Client and friend

        I may have misinterpreted your original post...

        The phrase "client and friend" could refer to one person who is both a client and a friend, and that's how I took it. So I thought it might be a single-member LLC.

        Reading it again, in context, it is obvious that it could also refer to two different people.
        Burton M. Koss
        koss@usakoss.net

        ____________________________________
        The map is not the territory...
        and the instruction book is not the process.

        Comment

          #5
          2 people

          Sorry I wasn't clear. There are two people involved. Not sure why she decided to incorporate, she didn't consult me first (wasn't a client) Thanks for the comments. I think we will stick with the 1065.

          Comment

            #6
            Originally posted by delaney View Post
            Client and friend created an LLC for a job coaching endeavor.
            Originally posted by delaney View Post
            Not sure why she decided to incorporate…
            Creating an LLC and incorporating are two different things. If she incorporated her business, an 1120 or 1120S is your only choice.

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              #7
              created an LLC

              did not incorporate. wrong word

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