Discussion:Investments Held in Single Member LLC
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Discussion Forum Index --> Basic Tax Questions --> Investments Held in Single Member LLC
Discussion Forum Index --> Tax Questions --> Investments Held in Single Member LLC
| 11 October 2007 | |
| My client created an Single Member LLC in 2006. It's only activity was to buy shares in another company. I am not sure how to record the activity. In order to buy the stock the LLC had to get a bank loan. So, the only expenses I have for 2006 are Interest on the loan, Filing Fees and a small amount of bank charges. | |
| 12 October 2007 | |
| A SMLLC is a disregarded entity, right? Unless he filed a check the box election. Assuming a disregarded entity, sounds to me like you have an investment, investment interest and investment expenses. | |
TheTinCook (talk|edits) said: | 12 October 2007 |
| B-but, but, but that's so simple! | |
| 13 October 2007 | |
| Not so fast, a Single Member LLC would file a schedule C. Normally investment interest expense is reported on the schedule A after the deductibility portion is calculated with form 4952. But, the Lacerte tax program does the calculation of the interest on form 4952 and still allows you to deduct the expense on the schedule c. Is this the correct reporting for that? I will end up with a large schedule c loss. Also, since the investment is in stock I will be reporting no income on the schedule C. | |
Death&Taxes (talk|edits) said: | 13 October 2007 |
| People in some states put their residences inside an LLC, for some who knows why reason. Would you then put the mortgage interest on a Schedule C? Or for that matter, would you put rental income and expense inside a SMLLC on Sch C? Or a farm? | |
| 13 October 2007 | |
| I know what your saying. I think it would be a big red flag to file this return with no schedule c income but showing a loss due to investment interest on the purchase stock. This year the amount is only $6,500 but next year it will be over $65,000 of investment interest expense. I do not mind putting it on the schedule A but the client will end up paying more in state tax. Also, assuming I place the investment interest directly on the schedule A would I then still have the miscellaneous business expenses on the schedule C? | |
| 13 October 2007 | |
| Interesting. Regarding the particular investment WBR mentioned, I'd have it registered under the LLC, this would get the liability protection he paid for. It's an investment of the business for accounting purposes only, the interest would be booked also, but reported as investment expense on his Shd A. It's an asset of the business, and the business should be enabled to create financial statements. Seems like Lecerte is calculating interest for operating interest incurred. I'd be interested to know what his business code is, like, what is his line of business? | |
Death&Taxes (talk|edits) said: | 13 October 2007 |
| Was the other company an S Corp by any chance? Is he an employee also? What miscellaneous business expenses?
You started out like he was a private investor putting his money into a business that was incorporated, and receiving stock in return, and that was that, but now the picture is changing. I feel like Dr. Szell. "Is it safe?" | |
| 13 October 2007 | |
| I'm sure I'm showing how dense I am, but I assumed it was an exchange traded stock. If it were another company, wouldn't it have to be a C Corp. I.e. can this kind of LLC buy shares in an S. Corp.? Is this a holding or investment company (the next Bershire Hathaway), or is the guy piddling around until he can open his dry cleaners. P.S. if it's a mere titling issue, then wouldn't the whole thing go on the individual return (no Shd. C). | |
| 13 October 2007 | |
| Sorry, I should have explained the situation better. The individual created a single member llc (XYZ, LLC). XYZ, LLC takes out a loan for $500,000 with a bank. Then XYZ, LLC uses the money from the loan to buy stock in another company that he has no role in.
To answer D & T earlier question about other expenses. The Other expenses are for creating the LLC and bank charges. | |
| 13 October 2007 | |
| Did he sign a personal gaurantee on this loan, if so, why the LLC? If the LLC is a permitted shareholder in some corp., why not rely on the Corp. liability protection, i.e. all TP could lose would be the value of his stock, as in any corporate investment? I'll let D&T & others answer this the right way, but those are just some obervations. Sounds like a personal investment, not a business. | |
| 13 October 2007 | |
| Not so fast, a Single Member LLC would file a schedule C. - WBR
Says who? An SMLLC is a disregarded entity (assuming the box wasn't checked). That means you disregard it and file the 1040 as if it didn't exist. This would not go on a Schd C. Like CrowJD, I'm curious what purpose the SMLLC serves. Anonymity? | |
Death&Taxes (talk|edits) said: | 13 October 2007 |
| I tried to say the same thing, but not as directly as you did, MEM. He has investment interest and investment expenses which belong on Line 22, Sch A or are capitalized into the cost of the stock. | |
| 18 October 2007 | |
| I also have a client with a single member LLC that holds all his investments. It's a disregarded entity so everything is reported on his 1040 on Schedule A, B, D, etc. All the 1099s and K-1s are issued in the LLC's tax id number. I put a note in the back of the tax return stating this, but of course don't expect the IRS to see it.
My question is how likely is it that my client gets a letter asking how come there was no tax return filed for the LLC? | |
| 18 October 2007 | |
| when the SMLLC requested the EIN, did it put the SSN of the SM on the SS-4? | |
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