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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
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Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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If I convert my sole proprietorship to a single member llc

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If I convert my sole proprietorship to a single member llc (disregarded entity) partway through 2013, when I file my taxes next year, do I need to file 2 schedule C's, each representing a short year or do I just use the new name and (EIN instead of SSN) on one schedule C and continue as if nothing else changed?

MyVirtualCPA :

Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

MyVirtualCPA :

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MyVirtualCPA :

You will have 2 schedule C's. One using your social security number for the part of the year you had a sole proprietorship

MyVirtualCPA :

The other schedule C will be for your LLC

MyVirtualCPA :

Then, after the initial year you will only have one schedule C

MyVirtualCPA :

Is there anything else that I can assist you with today? If not, please rate my response as "excellent" so that I may receive credit for assisting you today.

Greetings,

 

Whether or not the sole proprietorship will just still file one Schedule C in the year of establishing a single member limited liability company (SMLLC) depends on whether or not the SMLLC chooses to be taxed as a corporation.

 

If the single member LLC does not choose to be taxed as a corporation then you will simply file as you always have. There is not any need to make two Schedule C as the SMLLC not electing to be taxed as a corporation is disregarded for income tax purposes. Disregarded means nothing changes in the tax reporting.

 

For more details see http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Single-Member-Limited-Liability-Companies

"For federal income tax purposes, a single-member LLC classified as a disregarded entity generally must use the owner's social security number (SSN) or EIN for all information returns and reporting related to income tax."

 

If the SMLLC elects to be taxed as a corporation, the Schedule C will cover only the period prior to that election and the corporation will file a return for the period after the election is effective.

For more information see http://www.irs.gov/publications/p3402/ar02.html#en_US_publink1000244352

 

Please ask if you need more information or clarification.

Thank you.

I am sorry, but I have to disagree with the previous expert. If you now have an EIN and do not use your SSN you would use two schedule C's to report your activity. One for your SSN and the other for your EIN.

The IRS will get information reports, and if you receive income under your LLC EIN then you will need to show that separate from the income in your own SSN so everything matches up nicely.

It's not REQUIRED to have two schedule C's, it will just make reporting and matching easier in the initial year of your LLC.

If you have further questions, please feel free to ask MyVirtualCPA. I'm here to help you.

Thanks again for using JustAnswer.com and sorry for any confusion caused. Please rate my previous response as "excellent" so that I may receive credit for assisting you today.

Thanks again!
Customer: replied 3 years ago.


This is why I asked the question. I have received conflicting answers from a variety of sources...If I did file 2 schedule C's would there be a change in the way depreciation is handled for the LLC. i.e. if I had an 5-year item with 2 years of prior depreciation, would i just continue over the next 3 years or would the LLC have to start over and depreciate the balance over 5 years?

You would not start everything over; everything transfers with the same attributes that you previously had in your sole proprietorship

Essentially nothing changes; Your entity selection is disregarded for tax purposes and is like you continued on with the same name. There is no REQUIREMENT to do 2 Schedule C's on your return, but I would do so to match the revenues to the EIN or social security number they were earned on.

However, your basis and depreciation will all transfer over. There's no need to start over.

Again, I'm sorry for any confusion that you may have in this regard. Perhaps I should have been clear that there is no REQUIREMENT to file two schedule cs, just a matter of preference.

Please take a moment to rate as "excellent" so that I may receive credit for assisting you today. Thanks again for using JustAnswer.com and have a great day.
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16547
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Thank you for the positive rating and the bonus. Please come back and see me if you ever need another question answered, I can also answer any finance or social security question that you might have. It was a pleasure working with you today and I hope you enjoy the rest of your day.

Thanks again.