SMLLC Tax election with CPA

12 Replies

I created a Single member LLC at the end of last year. I called my CPA to ask about any consequences transferring from husband/wife to SMLLC (myself as the sole member). He mentioned that I would have to choose partnership or S corp? I told him it is single member and I selected disregarded entity when applying for EIN. He said I still had to choose partnership or s Corp within a certain amount of time after creating the LLC. Am I missing something?

He is wrong if you are the only member of the LLC. Then you do not need a partnership, S-corp or C-corp.

Yup, @Steven Hamilton II is right. SMLLC by default is treated as a disregarded entity and taxed as a sole prop on Schedule C or a rental on Schedule E.

From the IRS Schedule E instructions:

"In most cases, a single-member domestic LLC is not treated as a separate entity for federal income tax purposes. If you are the sole member of a domestic LLC, file Schedule E (or Schedule C, C-EZ, or F, if applicable). However, you can elect to treat a domestic LLC as a corporation. See Form 8832 for details on the election and the tax treatment of a foreign LLC."

Thanks, I did research before I created the LLC, but made me question myself.

Apparently I misunderstood some of the terminology in the discussion with my CPA this morning. He got back with me and agreed, I can do nothing and remain a disregarded entity, or elect to be treated as an S corp. He said he prefers to make the election and separate from personal tax return and file 1120s, to keep personal activity separate and avoid co-mingling. So does the SMLLC, as a disregarded entity, not limit liability, even if there is no co-mingling?

Also, can I change the tax election, at a later date, if I chose to?

@Shawn H. "So does the SMLLC, as a disregarded entity, not limit liability"

This is a legal question.

Originally posted by @Shawn H. :

Apparently I misunderstood some of the terminology in the discussion with my CPA this morning. He got back with me and agreed, I can do nothing and remain a disregarded entity, or elect to be treated as an S corp. He said he prefers to make the election and separate from personal tax return and file 1120s, to keep personal activity separate and avoid co-mingling. So does the SMLLC, as a disregarded entity, not limit liability, even if there is no co-mingling?

DO NOT MAKE THAT ELECTION IF YOU HAVE RENTAL PROPERTY IN THAT LLC. If he advises so that is malpractice. It will do nothing but cost you money.

You can keep things separate without doing that. You really should consider a consultation with someone here such as @Natalie Kolodij or @Linda Weygant .

You definitely need someone qualified, does not have to be a CPA, could be an Enrolled Agent or an attorney. Just make sure they specialize in tax and have significant experience dealing with real estate investors.

Here is a great list of questions to ask a potential accountant: http://www.biggerpockets.com/forums/51/topics/7044...

Also check out the www.NAEA.org page in your search. It should help you find someone local. If someone comes to me, I'll send them your way.

If you need help in your search or want to verify something don't hesitate to ask.

For example: I have clients worldwide and things are just as easy as I e-mail them, talking on the phone. I even use Skype and TeamViewer to communicate with clients so I'd highly recommend looking for one of the best with great references that interviews well with you.

So look for someone you can connect with that works out for your situation.

Feel free to ask here if you have questions

@Steven Hamilton II Thanks for your honest advice, I've been reading through some of your other posts. I already decided to not take the election, but it's good to be verified by someone credible, thanks again. I will look into your suggestions.

Based on what you've told us, he's giving you bad advice and selling you an additional tax return. You should find an accountant with experience in real estate.

If you are operating as a disregarded entity, your LLC does not need a separate EIN unless you have employees. You will report your LLC activity on your personal income tax return using your SSN. Although it is good business practice to keep your personal funds separate from your LLC funds, IMHO there is no comingling issue with a SMLLC treated as a disregarded entity if you do not segregate your bank accounts..

@Dave Toelkes The only reason I got the EIN was so I could setup a separate business account.

@Shawn H.

Why couldn't you have used your SSN for the bank account?  I still maintain you don't need an EIN for a SMLLC disregarded entity.  You don't even need a business banking account with recurring monthly fees.  You can get a separate personal checking account with no montly charges and sometimes with free checks which can be used for your rental activity.  Shop the banks for the free perks that accompany a personal checking account.  I have three personal accounts at one bank, two personal accounts at another bank, and one pesonal account at each of three more banks.  No monthly fees, statement charges, or check fees for any of my accounts.  The larger banks even give free checks and free wire transfers.  Every couple of years or so, one bank even gives me interest free, one-year loans in the form of a cash advance on that bank's VISA card (and no transaction fee).  No bank charges to download my personal checking account transaction activity to my Quicken software.  Some banks charge a fee for transactions downloads from a business account.

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