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William Ellis, CPA
William Ellis, CPA, CPA
Category: Tax
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Experience:  Over 15 years of experience in public accounting
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To make an LLC less likely to be disregarded by the IRS or

Resolved Question:

To make an LLC less likely to be disregarded by the IRS or a creditor would it be advantageous to make my wife a 50% partner of the LLC instead of being the sole owner? If not, would I be able to make another person a 1% owner to avoid the same problem?
Submitted: 3 years ago.
Category: Tax
Expert:  William Ellis, CPA replied 3 years ago.

William Ellis, CPA :

This one came to me first. Are you looking for other experts' opinions?

Customer:

no

Customer:

I don't know why it went out to everybody

Customer:

I just sent it to you

Customer:

do you have an answer?

William Ellis, CPA :

Don't worry about it. It really wouldn't matter either way. If you put someone besides your wife in at 1%, that's 1% of the income that you won't have. I'd still go with the partnership approach, so you won't have to file as a C-Corp. Filing as a C-Corp means there will be corporate income tax, and the funds beyond your salary that are taken as distributions will be taxed as dividends. This is not the case with a partnership.

Customer:

But would the IRS and creditors disregard it if my wife was the partner?

William Ellis, CPA :

No, they would not.

William Ellis, CPA :

But, an LLC would be considered a C-Corp unless you elect to have it treated as an S-Corp. Either way, you'll have more issues doing this than if you form an LLP.

Customer:

Please read that those last two sentences you just wrote.

Customer:

How would an LLC be treated like an S-corp?

Customer:

Remember, my existing S-corp is an insurance agency and is separate.

William Ellis, CPA :

Forming an LLC with more than one member makes it a corporation. Every corporation is a C-Corp unless you elect to be treated as an S-Corp.

William Ellis, CPA :

Do you have any more questions about an LLC?

Customer:

you there?

William Ellis, CPA :

I'm back now. Just finished eating with my daughter in my lap.

William Ellis, CPA :

Do you have any other questions?

Customer:

If the LLC elected to be taxed as an S-Corp will it be subject to the dissolving provision if it derives more than 25% of its income from rents (passive income)?

William Ellis, CPA :

You're right. I was talking about general tax issues. Sounds like you need to treat the LLC like a partnership. Thanks again, Bill.

William Ellis, CPA, CPA
Category: Tax
Satisfied Customers: 296
Experience: Over 15 years of experience in public accounting
William Ellis, CPA and 2 other Tax Specialists are ready to help you

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