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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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Sorry, one more question. As my friend suggested me that

Resolved Question:

Sorry, one more question.

As my friend suggested me that I could even use partnership, he could own 1% of my LLC. His point is that way i will fill taxes via EIN and also use K1 to fill taxes return, it will have more benefit rather than sole proprietorship - use SSN to file taxes. Because I will have more choices on taxes deduction.

I'm not sure if he is right, just wanted to double check. As my husband is have LLC but partnership with his other 2 partners.

Please let me know if my friend's idea is right or wrong. Thanks!
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
That suggestion is correct.
However - you woudl need to amend your LLC documents - and convert the single member LLC into teh LLC with two members.
In this case under default rules the LLC will be treated as a partnership.



A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.




A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return.




Some additional information about partnerships may be found in IRS Publication 541 - http://www.irs.gov/publications/p541/index.html


Then - each partner reports pro-rata share of income on his/her individual tax return.




All business income and expenses are reported on the partnership tax return form 1065 - http://www.irs.gov/pub/irs-pdf/f1065.pdf


Partnership should issue schedules K-1 to each partner reporting pro-rata share of net taxable income - http://www.irs.gov/pub/irs-pdf/f1065sk1.pdf


LEV :

There will NOT be more choices on taxes deduction. All expenses must be deducted on the partnership tax return - form 1065. You will report income passed to you from the partnership on schedule E and it will be subject of self-employment taxes. There would not be any tax benefits - but legally - that woudl be a different business entity.
There will be some additional overhead for filing a partnership tax returns. So - if you choose this route - be sure all returns are timely filed.

Customer:

Thank you so much for this explanation. So for my situation, which way is better choice? Either sole owner or partnership? My friend would join me to my LLC. The good thin for partnership is i don't need to pay income tax, passes through any profits or loses to partners, I think it's better than sole owner? Should be more flexible on taxes, right?

LEV :

Because the partnership is a pass through entity - means all income or losses are passed to partners - the result woudl be eccentrically the same as with the solo proprietorship - the net income will be included into your personal tax return and will be subject of self-employment tax - so from income tax prospective - I see no difference.
There is no additional flexibility but there is an additional overhead for filing income tax returns of the partnership.

Customer:

Sorry, i hope i didn't ask you too much.

Customer:

Sorry, are you still in?

Customer:

Sorry, I didn't see your answer until now. Thank you so much! So I would stay Sole owner ship.

LEV :

I generally suggest to keep things as simple as possible - and as a starting point - you better to be a disregarded entity reporting all your income and expenses as a solo proprietorship.
However - when your income will bypass $50,000 - you might want to choose the LLC to be treated as S-corporation. There will be additional overhead for filing S-corporation tax returns - but a part of your income will be passed from S-corporation without self-employment taxes - so there would be potential saving.

Customer:

My income right now is over $100,000

Customer:

But again, as i paid by commission, most time would over $50,000, sometimes might less than it, if have a bad year, hard to say.

LEV :

When I mentioned $50,000 income level - I meant - net income after deducting all possible expenses.
If yes - you might benefit from selecting S-corporate treatment.

Customer:

Yes, i don't have much deduction on my expenses so far, i paid very high taxes on 2012, that's why i opened a company LLC, thought might be possible could use it to deducted more on taxes.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22772
Experience: Taxes, Immigration, Labor Relations
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