Doing business through our LLC even though we own properties in our name - tax issues

4 Replies

I am going to try to make this as clear as possible.

My husband and I own 6 properties all in our own names.

Just this last year we got our LLC setup with bank accounts and business cards and we have been doing business with this name. However, none of the properties are actually owned by the LLC. Can we choose whether or not to file all our business income through the LLC or simply on our Schedule E? I would prefer to do it on a 1065 as a partnership, to start building tax history for the LLC, but didn't know if this is allowed.

We will be using a cpa to do our taxes but haven't gotten everything in order. I was planning on filing an extension, but didn't know if I should file one only for us personally, or to file an extension for the LLC as well.

Hoping this makes sense enough for someone to understand.

Thanks for your help!

@Danae Meurer Since it's late in the season, I'd go ahead and file an extension and make sure you pay enough to avoid penalties (a CPA will help you with this).

Without knowing much about your business and financial position, I'd recommend not filing Form 1065 and sticking your properties on Schedule E. Since you've only been DBA the LLC's name and the LLC doesn't own the properties or operate any sort of business, the LLC doesn't really come into play. Additionally, a CPA will charge you a couple hundred extra for preparing and filing Form 1065.

I'd also want to look at deducting your LLC's start-up costs, but without knowing all your information, I can't give you solid advice on how you can go about doing that.

Let me know if you have any questions.

Is your LLC a partnership? If so, then it will need to use the form 1065 and issue 10K-1 statements to each partner. If it is a sole proprietorship, then you do not use the 1065. Regardless of the case, an LLC is a DISREGARDED entity as far as the IRS goes. It does not pay taxes. ALL profits and losses FLOW THROUGH the LLC to the owner. You set up an LLC for Liability protection, NOT for tax protection.

@Brandon Hall please correct me if I'm wrong but as husband and wife wouldn't it be more costly to have a partnership as oppose to a SMLLC since they are married assuming they file a joint tax return? This would avoid any self-employment taxes, no?

@Rob Beland it will be more costly for the reasons I stated above and a few others. CPAs charge a lot more to prepare and file a 1065. 

Placing properties into a LLC that elects to be taxed as a partnership will not subject the income to self-employment tax. Net rental income from real estate is exempt from the self-employment tax. The exemption applies to a partner receiving such income from a partnership.

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