Tax Loss LLC Filing

6 Replies

I'm preparing to file my taxes for my LLC. Since we didn't have our rental units yet for last year, the only cash event that occurred was the cost for forming the LLC. Total amount was less than $500, so I'm wondering if someone could point me in the right direction for how to handle this?

Thanks!

Hey Reese, I'm not an accountant but I do work for the IRS and deal mainly with business compliance issues. Your federal filing requirement depends on if you made an entity classification election on form 8832 or not. For example you could elect to be treated as an S corporation for tax purposes on form 8832. If you made no election you are subject to the default classification. A single member LLC defaults to a disregarded entity which means you include your LLC income and losses directly on your personal tax return. A multi member LLC defaults to a partnership classification meaning you would need to file a 1065 which is a non-taxable return but subject to a penalty if not filed timely. Hope this helps.

Jason

@Reese Thompson

@Jason Krejci provided good advice and I hope he sticks around as that will be cool to have an IRS guy on the boards. 

I'm under the impression you won't have a reporting obligation in 2015. Reason being that you weren't "in business" until you actually have an operating rental. 

A rental is placed into service when advertised for rent - if that didn't happen in 2015, you capitalize your set-up costs as "start-up costs" and deduct in the year you actually place a rental into service, subject to limitations.

I'm also assuming that by "we" you have partners. Depending on how you take title and depending on your various activities, you may not necessarily need to file a 1065 to report your share of the income and expenses, though it's certainly the safer route to take.

You should consult a CPA prior to filing.

Hope this helps.

Updated over 5 years ago

I do want to correct the statement made above. You do not file Form 8832 to make the S election, rather you file Form 2553. Per Form 8832 instructions: An entity must file Form 2553 if making an election under section 1362(a) to be an S corporation. Electing to be classified as an S corporation. An eligible entity that timely files Form 2553 to elect classification as an S corporation and meets all other requirements to qualify as an S corporation is deemed to have made an election under Regulations section 301.7701-3(c)(v) to be classified as an association taxable as a corporation. Per IRS Pub 3402: An LLC with either a single member or more than one member can elect to be classified as a corporation rather than be classified as a partnership or disregarded entity under the default rules discussed earlier. File Form 8832 to elect classification as a C corporation. File Form 2553 to elect classification as an S corporation. LLCs electing classification as an S corporation are not required to file Form 8832 to elect classification as a corporation before filing Form 2553. By filing Form 2553, an LLC is deemed to have elected classification as a corporation in addition to the S corporation classification.

Something else to consider, the statute of limitations does not start running until you file a return. Some may choose to file without a filing requirement just to start the clock.

@Reese Thompson , below is an excerpt from the "Who Must File" section of the Form 1065 instructions. Form 1065 is the partnership tax return, which multi-member LLCs typically have to file unless they have elected to be treated as a corporation.

Who Must File Except as provided below, every domestic partnership must file Form 1065, unless it neither receives income nor incurs any expenditures treated as deductions or credits for federal income tax purposes.

You have not received income, and since you are required to capitalize your start-up costs until your real estate business actually begins, I would argue that you have not "incurred expenditures that would be treated as deductions for federal income tax purposes" and so do not have a federal filing requirement.

Of course, if yours is a single-member LLC (i.e., you are the sole owner), and you haven't elected to be treated as a corporation for tax purposes, you're off the hook as far as a federal filing requirement is concerned, and you don't have to worry about any of this.

This all being said, you may still have a state filing requirement depending on where the LLC was formed, regardless of whether your LLC is multi- or single-member. California's Franchise Tax Board, for example, requires every LLC registered with the California Secretary of State to file a tax return, regardless of whether or not it had activity during the tax year, and regardless of whether or not it's disregarded for federal income tax purposes, and it will come after you if you don't.

Consult with a CPA familiar with the laws in your state.

Wow, lots of good info here. Thanks everyone. I forgot to mention that I do have a partner in the LLC

So I'm kind of under the impression that I'm not necessarily required to file the 1065, but I should anyway to get the ball rolling and do a little cya.  Better to do than not do type of thing?  

Hey gang - Tis the season to dig up old tax related threads.

Just want to make sure I'm following this correctly. I set up my LLC in February 2016. My wife and I own it 50/50. Even though it's a partnership since we are the only owners the full basis would transfer to our jointly filed individual return. We purchased two properties and renovated them, however tenants did not move in until 2017. However...our property manager started marketing the one property in September 2016 and had a tenant interested but Section 8 changed her voucher amount during the process and she could no longer afford the rent. Since we were actively marketing the property does this constitute having started the business? Or does the fact a tenant didn't move in until 2017 mean we capitalize the investment in 2016 and do not report the losses until 2017 and simply file the form 1065? We have a fair amount of capital sunk into these two properties since we had no rents coming in, so I'm trying to understand how exactly that will impact my taxes for 2016 filing.

Thanks!