Discussion:Husband/Wife LLC
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Discussion Forum Index --> Tax Questions --> Husband/Wife LLC
| 28 June 2007 | |
| Need your help. I have a new client that wants me to file their 2006 income tax return (extension has been filed). They formed an LLC in March 2005. It is a Residential Construction Company. I am told the wife is a 51% owner and husband 49%. Husband material participant and Wife is not. Their 2005 Tax Return was prepared by a local CPA. It was filed as follows: Husband a Sch. C, principal business - Construction, Wife Sch. C principal business - Construction Residential. They do not have an EIN number that I am aware of. They issued 1099's for 2006 under the husbands SS#. Everything that I have read in the forums here concerning LLCs indicates that they should file a Partnership Return and probably should have for Tax Year 2005 also. Any advice on what I need to do, my next step, etc would be greatly appreciated. I feel lost at the moment. | |
| June 28, 2007 | |
| You're right, but I wouldn't bother messing with 05. Since all items of income and expense were reported on the 1040, albeit incorrectly, you can ignore the failure to file the 1065. But file it for 06 and beyond. | |
Kmcolemancpa (talk|edits) said: | 28 June 2007 |
| Seems like 2005 preparation subjected wife to SE tax, unnecessarily if not a material participant.
Two person H & W LLC - recommend you file the return. Lower audit risk by separate return, and show wife's share as not subject to SE tax. They should get an EIN if they agree to file the LLC return. They also need to provide all their customers with the W-9 to avoid getting income reported to his SSN. | |
Death&Taxes (talk|edits) said: | 28 June 2007 |
| Forgive me for being flippant, but this sounds like a classic 'bid for minority business' set-up, the minority being the wife. If I am wrong, don't shoot me. | |
| June 28, 2007 | |
| So if you're correct, we must forgive. And if wrong, we can't shoot. Not much recreation there for us you know... | |
| 28 June 2007 | |
| I agree; file the 1065 to relieve the wife of the SE taxes on her passive activity. | |
| 29 June 2007 | |
| Thanks for all your advice everyone and Death? Won't shoot ya, don't like guns anyway..lol. The 2005 return came out as a loss for the wife, so no SE tax involved there. Won't they need the EIN before preparing Form 1065 for 2006? If they apply now, is it allowed to be used for 2006 tax purposes. Also, will the 1099's be allowed as a deduction on Form 1065 for 2006, even though they were issued using the taxpayer's SS# and not an EIN #? Oh and one more thing, they had 2 depreciable items on 2005 return. One on each Sch. C. How best do you determine basis when they are transfered to the Form 1065? Again thanks for your help!! | |
| June 29, 2007 | |
You want us to just do this for you?  You sure do have a lot of questions...of course you need EIN, and when you apply put down 1/1/06 as the beginning date. No one will care for now that the 1099 #'s were under SS#. Don't worry about it. For a 1065, the depreciable assets will transfer over, as does everything else, just as they are on the Sole prop books. So Orig. cost, accum. depreciation.
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| 30 June 2007 | |
| No I don't JR1. Sorry for all the questions. Thanks so much for the help! | |
| 2 July 2007 | |
| May 2007 tax law change allows husband and wife operating a business together to file 1 schedule C and 2 separate SEs.
Single member LLC's also file as dba/schedule C. I have a husband/wife formed LLC, 50/50 ownership, but actively participating at other than 50/50. Given the combination of May 2007 law and the disregarded entity concept of single member LLC, does the husband/wife LLC report the business operations on a schedule C or a Form 1065? | |
| 2 July 2007 | |
| Note that the recent change doesn't yet apply to rental LLCs, only to LLCs generating self-employment income. | |
| 2 July 2007 | |
| I thought the law recently changes. A h/w llc that filed as a partnership will now have to file 2 sched c with the 1040 in proprotion to the ownership of the entity. | |
| 2 July 2007 | |
| Thank you both. I'm anxious to do some general tax planning for this newly acquired business and plan to do that via a "what if" file using 2006 Pro Series.. with a view to eventually converting the 2006 files into 2007.
The depreciation schedule will be long, so am not anxious to enter it on an individual form only to find that I should have used 1065.... or vice versa. Can either of you tell me specifically whether you would opt for C or 1065 for this specialty ice cream store operating business? | |
| 2 July 2007 | |
| I would do a 1065 that way only 1 set of W-2s and 941s need be prepared. | |
