husband /wife members of LLC

[Hahn1040]

is there any provision that an LLC with two members that are spouses can be considered a disregarded entity?

the LLC is for a rental property that they purchased 

of course the difference is having to do the partnership return vs. just sticking the rental on the schedule E on the joint return.

I'm sure that when they were buying the rental, someone told them "you'd better form an LLC" for liability purposes, but didn't tell them the part that it makes their tax returns more complicated!

Edited May 12, 2015 by Hahn1040

[Lion EA]

You get to charge for a 1065 and a 1040.

[Abby Normal]

It's a debatable topic. I have several H/W LLCs that I disregard and put on Sch E. First off, it will not likely be raised on an audit. Second, the IRS has no tax to gain by moving it to a 1065. Third, we have automatic removal of late filed 1065s if all income is timely reported by partners. I'm not worried.

[Max W]

California requires form 568 for an LLC, for single member or multiple.

In 2013 they started imposing fines for non-filing.

[Possi]

I agree with you, jmdaviscpa, for what it's worth... and that ain't much!

 

[Bart]

Are they in a community property state?  If so, they can put it on a schedule E.

[mcb39]

It's a debatable topic. I have several H/W LLCs that I disregard and put on Sch E. First off, it will not likely be raised on an audit. Second, the IRS has no tax to gain by moving it to a 1065. Third, we have automatic removal of late filed 1065s if all income is timely reported by partners. I'm not worried.

​I am in a CPState.  I put it on the E.  Some of these clients have such complications already that adding a 1065 to the mix is just not user-friendly.  Sometimes a "smart" attorney just makes a little extra money by talking them into an LLC. 

[Randall]

I'd do the 1065.  They want to be an LLC, presumably for legal protection.  So I recommend being consistent in all things and act like an LLC.  Some people don't bother to title the property in the LLC name.  How does that work if there's legal action?

 

[michaelmars]

I posted on this topic numerous times, I would use a 1065, in almost every case I want the 1040 to be from flowthroughs.  I might even give a spouse or child .0001% just to get it off of the 1040.  High 1040's have a higher rate of audit, and an auditor will make you prove expenses aren't personal. Having it as a 1065 makes it easier down the road to add partners or transfer percentages each year to children.  If any legal issues occur you only have to supply the 1065 to a tenant for example and not the whole 1040 which even though protected, shows all your other income or assets.  When your loving couple gets divorced, its much easier to trace the distributions.

Since the amount of accounting you would have to do is the same whether on an E or 1065, the only extra prep cost is the actual filing out of the form.

[Lee B]

I posted on this topic numerous times, I would use a 1065, in almost every case I want the 1040 to be from flowthroughs.  I might even give a spouse or child .0000% just to get is off of the 1040.  High 1040's have a higher rate of audit, and an auditor will make you prove expenses aren't personal. Having it as a 1065 makes it easier down the road to add partners or transfer percentages each year to children.  If any legal issues occur you only have to supply the 1065 to a tenant for example and not the whole 1040 which even though protected, shows all your other income or assets.  When your loving couple gets divorced, its much easier to trace the distributions.

Since the amount of accounting you would have to do is the same whether on an E or 1065, the only extra prep cost is the actual filing out of the form.

​I agree 100 %

[Gail in Virginia]

You make some very good points that I had not considered, Michael.  i usually do a 1065 for partners, even husband and wife partners, just because that is correct.  Now I have even more reasons to do that. 

[SaraEA]

The only available choices are a partnership or a qualified joint venture. Since they formed an LLC, their only choice is a partnership.  http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Husband-and-Wife-Business

"A business owned and operated by the spouses through a limited liability company does not qualify for the election

Only businesses that are owned and operated by spouses as co-owners (and not in the name of a state law entity) qualify for the election. See Rev. Proc. 2002-69, 2002-2 C.B. 831, for special rules applicable to husband and wife state law entities in community property states."

 

I'm working on one of these right now.  And since the couple never told us about the LLC, just popped in with a new rental property, we never filed an extension for the partnership.  It will be okay since their return will be timely filed with the LLC income reported from the two K-1s, but you know it will mean some IRS correspondence. Let us know if the community property rules are a way out.  (Our state is now CP so I didn't dig deeper.)

[Hahn1040]

hmmm

does this change anything:

all of the LLC documentation refers to one member: John Doe and Jane Doe, HUSBAND AND WIFE, IN A TENANCY BY THE ENTIRETY

in the operating agreement it says: Federal Tax Treatment: For federal income tax purposes, at all times when one person or entity owns all of the membership interests of the Company, the Company will be characterized as a "disregarded entity", unless the Member elects otherwise.

the LLC was formed and the rental property is in Florida

the taxpayer works for the State Department and is posted in Vietnam 

the house cost $21,000!!!   I'm pretty sure it is a house not a condo...either way, I'd say for most of us to see a home for $21,000 in this day and age is amazing!  I live in the DC area.  You can't buy a parking place for that!

thank you so much to all who have contributed opinions and insight.  I really appreciate it!

 

[Randall]

Either he bought this a hundred years ago or it's a shack on stilts surrounded by alligators!!!

[GeneInAlabama]

During the depression, my grandfather found a job in another state and wrote back and told my grandmother to sell the house for whatever she could get and come there.  She sold the house for $75.00.