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npvadvisor
npvadvisor, CFP with Law Degree, concentrating in business and tax
Category: Business Law
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Experience:  Juris Doctorate, CFP Designation Master's Degree, Finance & 30 years experience providing business advice
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We are a husband & wife 50/50 LLC in CA. For the first time,

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We are a husband & wife 50/50 LLC in CA. For the first time, we are showing a profit (about $16K) on paper (2012 LLC tax return ready to file) -- no money is being distributed to us like salary, etc. Hubby works construction (earning W2 wages) and files for unemployment benefits when out of work. The LLC is essentially my business (wife) which I manage/operate solely and our 50/50 split is for tax reporting purposes. I don't have any other W2 wage income. For the first time we will both have K1's showing income from the LLC to report on our individual tax return (married filing jointly). So main question is -- Can we get in trouble with the EDD for hubby's UI claim with this "income" reporting? EDD asks on the claim application -- "are you an officer of a corporation or a sole or major stockholder of a corporation" We think the answer is "no" -- but not sure if his 50% in LLC is technically a "major shareholder" of a "corp"?? Can we/should we instead switch things to have only me as 100% and take all the income in my name for our tax purposes? Or is there a better solution?
Submitted: 1 year ago.
Category: Business Law
Expert:  npvadvisor replied 1 year ago.

Lane :

Hi,

Lane :

Your intuition is good.... You PROBABLY are OK, because an LLC (even though it has the liability protection of a corporation is not an corporation) ... but, owning the LLC in your name would, by far, be the safest

Lane :

The income is going to flow to your joint return either way, bit this way it's your income

Lane :

Also, when you do this, you'll no lnger need to do the 1065 and K-1, as a SINGLE-MEMBER LLC you'll just do a schedule C, as if you were a sole proprietor

Lane :

Hi, do you have any questions?

Lane :

Here's the form for amending the LLC with California (Certificate of amendment): Form LLC-2 All you do is check the box that there's only one manager, and in section 3.(c) (where it says "AMENDMENT TO TEXT OF THE ARTICLES OF ORGANIZATION:" say, amend articles to remove _______ as member.

Lane :

I still don't see you coming into the chat ... I can move us to the "Question and Answer" mode, so that you can ask any follow-up questions you may have

Lane :

(we can still continue our dialogue there ... just not in real-time, as we can here)

Lane :

Let me know of you have questions at all

Lane :

Lane

Lane :

If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.


HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

Customer: replied 1 year ago.

I don't see any answer ... ?

Expert:  npvadvisor replied 1 year ago.
Your intuition is good.... You PROBABLY are OK, because an LLC (even though it has the liability protection of a corporation is not an corporation) ... but, owning the LLC in your name would, by far, be the safest

The income is going to flow to your joint return either way, bit this way it's your income

Also, when you do this, you'll no lnger need to do the 1065 and K-1, as a SINGLE-MEMBER LLC you'll just do a schedule C, as if you were a sole proprietor

Here's the form for amending the LLC with California (Certificate of Form LLC-2 All you do is check the box that there's only one manager, and in section 3.(c) (where it says "AMENDMENT TO TEXT OF THE ARTICLES OF ORGANIZATION:" say, amend articles to remove _______ as member.

I still don't see you coming into the chat ... I can move us to the "Question and Answer" mode, so that you can ask any follow-up questions you may have

(we can still continue our dialogue there ... just not in real-time, as we can here)

Let me know of you have questions at all

Lane

Customer: replied 1 year ago.

Sorry for delay -- I was considering this info you presented. Can we change our tax return filing for 2012 so it's all in my name (sched C) or is it only something we can do AFTER the change form is officially filed?

Expert:  npvadvisor replied 1 year ago.

My apologies for your not being able to see the answer here.

It looks like some changed the category to "Business Law," while I was typing my answer.

This SHOULD, however, as your question ahows be in the tax area.

Again, having the k-1 (a tax document) provided to your husband DOES carry some risk (even though the statement you provided says "corporation).

Because the income will flow to the joint return either way, and changing to a single-member LLC wil have no tax ramification, I would make that change.

Again, here is the form you'll need:

Form LLC-2 - California Secretary of State - State of California

 

As I mentioned above, just check the box that says there' a single manager and in section 3, part C (where it says "AMENDMENT TO TEXT OF THE ARTICLES OF ORGANIZATION:"), say, amend articles to remove _________ as member.


Then, you'll just report the LLC's taxinformation on a Schedule C and that will flow to line 12 (business income or loss) on your joint 1040.


Most important, the LLC income will be considered your income, just as if you ahe a w-2 from a job and included it on your joint return.



Expert:  npvadvisor replied 1 year ago.

Since the LLC is a pass through, it's the end of year status that applies.

I would put an effective dats of sometime before the end of 2012 on the article or amendment.

then you can file an amended return for 2012 and everything will be appropriate.

Lane
npvadvisor, CFP with Law Degree, concentrating in business and tax
Category: Business Law
Satisfied Customers: 3991
Experience: Juris Doctorate, CFP Designation Master's Degree, Finance & 30 years experience providing business advice
npvadvisor and 10 other Business Law Specialists are ready to help you
Customer: replied 1 year ago.

OK -- so the change form can still be filed with past effective date. We haven't filed our LLC return for 2012 yet -- but those are done and ready to efile. Should we still file them as is and then amend? The deadline for the LLC returns is Sept 15 (now). Our ind returns are on extension until Oct 15 so we have time for that.

Expert:  npvadvisor replied 1 year ago.


The articles allow for a future effective date, (note that at the bottom) just before the signature.

But they DON'T say anything about a retroactive date.

I would handle it this way:

Where it asks for the language, say "Articles should reflect that this is a one-member LLC. Single member is [Your Name]. Please make this correction"

Because the effect is the same, given the pass-through status, at the federal and income tax level, there no risk there at all.

The risk you DO take is whether CA will make this as a correction or an amendment.

I understand that this isn't a guarantee, but hopefully I've helped you understand all the facts, so that you can make an informed decision.





If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.

HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

Lane



Expert:  npvadvisor replied 1 year ago.

Thanks so much.

Good luck with everything!

If you’d like to work with me again, just say “For Lane only …” at the beginning of your question, and I’ll get the alert.

Thanks again,

Lane

.

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