QUESTION.
I started a small family business (husband & wife) last year. It is a service company and organized as an LLC with me listed the primary contact. Next, I requested a TIN with myself as contact once again. Upon receipt of the TIN I noticed that my status was sole member of disregarded entity. My intention was for the two of us to be equal partners and share the income/loss through our annual tax returns. As I reviewed my taxes for 2006, I noticed that there is a statement that I cannot file form 1065 partnership due to my federal tax status.
We started operation the last week of September through December with no salaries paid to either of us. I have calculated a loss of approximately $3,600 for those 3 months which is primarily equipment, renovation, rent, utilities, and supplies. My initial thought is since no salaries were paid and no SE is required this time, I could file 1040 schedule C and roll it to our taxes (we file jointly) this time but I need to fix our filing status as I anticipate salaries being paid to generate SE and taxes by June 07. What forms or actions do I need to take to change the status of this LLC to a joint ownership? Also, will a new TIN be required once the status is changed?
ANSWER.
You say you created an LLC last year. You and your wife are the underlying partnership behind the LLC. Your first mistake was not listing both you and your wife as the partners in the LLC. You should correct that with the State. If you don't, then the State recognizes your LLC as a single-member LLC - and that is not your intention.
Once you have your LLC paperwork in order. Then you need to apply for an EIN for your LLC which is a multi-member LLC, which is usually viewed by Uncle Sam as a partership for tax purposes. I say "usually" because there is such a thing called "check the box" and you could have your LLC treated as a C Corporation. My recommendation is that you want to have it treated at a partnership.
Whether your LLC is a single-member (sole proprietorship) or multi-member (partnership) will dictate which tax forms you have to file with the IRS. You are currently being treated as a single-member because of the way you filed your LLC papers with the State and how you applied for an EIN with the IRS. Fix your problem by getting an EIN for your multi-member LLC as if it is a partnership. Make sure the other EIN you applied for is terminated. If you do that, then you will be able to file a Form 1065 partnership tax return which is what you should be doing.
Sounds like you have your work cut out for you. I hope my comments are helpful. Good luck! Regards, -Jeff
Jeff Lippincott
SCORE.org Counselor
Princeton, NJ
scoreprinceton @ aol.com
www.scoreprinceton.org
http://www.jlippin.com/
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1 comment:
Is that possible you can compare the differences between the single member LLC and multi member LLC, on the tax filing aspect as well as state filing fees etc, I just want to make sure I understand the differences before I register one. I heard in NJ you have to pay some type of annual fee for business to exist, even though sometimes you don't have the business for that year, Is that true ?
Thanks a lot for answering.
Best regards.
John Z.
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