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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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Which tax forms do I file for my newly created asset protection entities

Resolved Question:

My attorney has created a number of entities for asset protection purposes:
1. SCorp -- My professional S-Corp for my medical practice
1. LLC -- holds my commercial rental property, rented to my SCorp (taxed as a disregarded entity)
2. FST -- Irrevocable family savings trust
3. LT -- Living Trust
4. FLP -- I am 1% general partner, LT is 99% limited partner
5. I have assigned my 100% interest in LLC to FLP
6. I have assigned my 99% interest in FLP to FST

Simple question: Which federal and California state tax forms do I have to file annually (informational or tax related) for these entities? How are these entities treated for tax purposes?
Submitted: 6 years ago.
Category: Tax
Expert:  Lev replied 6 years ago.

You will use form 1120S for S-corporation

http://www.irs.gov/pub/irs-pdf/f1120s.pdf

http://www.irs.gov/pub/irs-pdf/i1120s.pdf

 

Single member LLC is not taxable entity and all income and expenses are reported on your personal tax return - for rental activities - on the schedule E - http://www.irs.gov/pub/irs-pdf/f1040se.pdf

 

For trusts - you should use form 1041

http://www.irs.gov/pub/irs-pdf/f1041.pdf

http://www.irs.gov/pub/irs-pdf/i1041.pdf

 

For partnership - use form 1065 with schedule K-1 reported income passed through to members.

 

 

 

Customer: replied 6 years ago.
Do I report LLC activities on the 1065 or on the 1040, based on the ownership structure I outlined in the original question? Thanks.
Expert:  Lev replied 6 years ago.

Single member LLC doesn't need to file partnership tax return - as there is no any partnership.

All income and expenses are reported on the member's individual tax return - in your situation - on the form 1040.

If LLC has only rental activities - you should use a schedule E - http://www.irs.gov/pub/irs-pdf/f1040se.pdf

if LLC has any additional activities - such as provides services or do contract work - you should use a schedule C - http://www.irs.gov/pub/irs-pdf/f1040sc.pdf and schedule SE - http://www.irs.gov/pub/irs-pdf/f1040sse.pdf

 

An LLC can elect to be an S corporation by filing Form 2553 - http://www.irs.gov/pub/irs-pdf/f2553.pdf and the LLC will file the tax return as S-corporation.

You need to consult with your accountant before making such election.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22828
Experience: Taxes, Immigration, Labor Relations
Lev and 7 other Tax Specialists are ready to help you
Customer: replied 6 years ago.

Lev,


Would you please look at the original question and tailor the answer to the ownership structure? Thanks.

Expert:  Lev replied 6 years ago.

1. SCorp -- My professional S-Corp for my medical practice

http://www.irs.gov/pub/irs-pdf/f1120s.pdf

http://www.irs.gov/pub/irs-pdf/i1120s.pdf
2. LLC -- holds my commercial rental property, rented to my SCorp (taxed as a disregarded entity)

If LLC elects to be an S corporation by filing Form 2553 - http://www.irs.gov/pub/irs-pdf/f2553.pdf - it will file same firms as S-corporation.

otherwise - if it is single member LLC - all income and expenses are reported on member's individual tax return.

If the member a physical person - on the form 1040.

Thus for rental activities - use schedule E - http://www.irs.gov/pub/irs-pdf/f1040se.pdf

For any additional activities - such as provided services or contract work - use schedule C - http://www.irs.gov/pub/irs-pdf/f1040sc.pdf and schedule SE - http://www.irs.gov/pub/irs-pdf/f1040sse.pdf

 


3. FST -- Irrevocable family savings trust

7. I have assigned my 99% interest in FLP to FST

4. LT -- Living Trust

For trusts - you should use form 1041 - http://www.irs.gov/pub/irs-pdf/f1041.pdf

FLP should issue schedule K-1 reporting partnership income to FST, that will be reported on form 1041.

Trust should issue schedule k-1(1041) - http://www.irs.gov/pub/irs-prior/f1041sk1--2006.pdf reporting distribution to beneficiaries.


5. FLP -- I am 1% general partner, LT is 99% limited partner

6. I have assigned my 100% interest in LLC to FLP
use form 1065 - http://www.irs.gov/pub/irs-pdf/f1065.pdf with schedule K-1 - http://www.irs.gov/pub/irs-pdf/f1065sk1.pdf reported income passed through to members.

not clear - what do you mean " I have assigned my 100% interest" - if FLP is a only member of LLC - it will report income received by LLC as its own unless LLC selects to be treated as S-corporation.

 

California filing

1. SCorp -- My professional S-Corp for my medical practice

  • S corporations that organize in California, register in California, conduct business in California, or receive California source income, must file California Form 100S.
  • The S corporation must provide each shareholder with a schedule K-1 that states the shareholder's allocation of tax items.
  •  

    2. LLC -- holds my commercial rental property, rented to my SCorp (taxed as a disregarded entity)

    All LLCs classified as partnerships or disregarded entities that organize in California, register in California, or conduct business in California, must file California Form 568 Limited Liability Company Return of Income.

     

    3. FST -- Irrevocable family savings trust

    4. LT -- Living Trust

    Form 541 - California Fiduciary Income Tax Return

    K-1 (541) - Beneficiary's Share of Income, Deductions, Credits, etc.

     

    5. FLP -- I am 1% general partner, LT is 99% limited partner

  • Every partnership that engages in a trade or business in California or earns income from California sources and every limited partnership that registers with the California Secretary of State is required to file California Form 565.
  • The partnership provides each partner with a schedule K-1 that states the partner's allocation of tax items.
  • Customer: replied 6 years ago.
    Since the FLP owns the LLC, shouldn't the LLC be reported on the FLP's 1065 instead of my own 1040?
    Expert:  Lev replied 6 years ago.
    If FLP owns 100% of the LLC - that is correct all LLC income and expenses should be reported on the FLP's tax return.
    Lev, Tax Advisor
    Category: Tax
    Satisfied Customers: 22828
    Experience: Taxes, Immigration, Labor Relations
    Lev and 7 other Tax Specialists are ready to help you
    Customer: replied 6 years ago.

    What form on the 1065 is equivalent to the Schedule C that I use to report LLC income on my personal tax return?

    Expert:  Lev replied 6 years ago.

    The form 1065 is designed to be used for reporting business income and expenses.

    This form itself is kind-of equivalent to the Schedule C.

    Customer: replied 6 years ago.
    So since the LLC is a disregarded entity, for tax purposes do I just ignore its existence and have expenses and income flow through to the LP which owns the LLC?
    Expert:  Lev replied 6 years ago.
    That is correct for single member LLC that did not choose to be treated as a corporation.
    Lev, Tax Advisor
    Category: Tax
    Satisfied Customers: 22828
    Experience: Taxes, Immigration, Labor Relations
    Lev and 7 other Tax Specialists are ready to help you
    Customer: replied 6 years ago.
    My attorney created an irrevocable trust which owns the Family limited partnership. So far the trust doesn't own anything else. Do I need to report the trust to the IRS (ie, do I need to submit an informational 1041)?
    Expert:  Lev replied 6 years ago.

    The trust does own an asset that is LLC. If the trust keep books - it should be on the balance sheet.

     

    Yes - as long as trust receive an income - either from LLC or any other activity - the tax return is required. The advantage of the structure you are using - the trust is not a subject for self-employment tax.

     

    According to 1041 instructions - http://www.irs.gov/pub/irs-pdf/i1041.pdf - page 4:

     

    The fiduciary (or one of the joint fiduciaries) must file Form 1041 for a domestic trust taxable under section 641 that has:

    1. Any taxable income for the tax year,

    2. Gross income of $600 or more (regardless of taxable income), or

    3. A beneficiary who is a nonresident alien.

    Two or more trusts are treated as one trust if such trusts have substantially the same grantor(s) and substantially the same primary beneficiary(ies) and a principal purpose of such trusts is avoidance of tax.

     

    Customer: replied 6 years ago.

    The Trust owns the FLP which in turn owns the LLC. So when the LLC earns rental income, who does it flow to? Who needs to report the income: the FLP or the Trust?

    Expert:  Lev replied 6 years ago.

    The FLP which owns the LLC - should report LLC business activities.

    Based on the above FLP has two members - you as 1% general partner, LT is 99% limited partner - so FLP should file partnership income tax return - 1065 and report all LLC activities.

    There is no income tax liability with this return. Instead there should be issued two schedule K-1 to each member - and each will report corresponding share on corresponding tax return.

     

    You will report your part - as it is from rental activities - on the schedule E part II.

     

    As you have so complex business structure - I strongly suggest to have an accountant.

    Customer: replied 6 years ago.
    Is it necessary for me to report the LT to the IRS? I.e., do I need to complete a 1041 since the LT itself did not directly receive any income.
    Expert:  Lev replied 6 years ago.

    As I point above - the fiduciary must file Form 1041 for a domestic trust taxable under section 641 that has: any taxable income for the tax year...

     

    As LLC income is passed to LT - and it is taxable income - you are required to file.

    Lev, Tax Advisor
    Category: Tax
    Satisfied Customers: 22828
    Experience: Taxes, Immigration, Labor Relations
    Lev and 7 other Tax Specialists are ready to help you

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