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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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I have a few tax liens (federals and state). I want to start

Customer Question

I have a few tax liens (federals and state). I want to start a tutoring service company, single owner LLC. Without filing form 8832, it is by default a disregard entity or considered as sole ownership for tax filing. Will it protect me if I select item C of form 8832 A domestic eligible entity with a single owner electing to be disregarded as a separate entity? How is this separate entity compared to the default "disregard entity"? and how to file tax on this option? What is the pros and cons on thisi? Or advise a better solution.
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

If that is a single member LLC and no election made - it will be disregarded entity.

Disregarded - means - ignored for income tax purposes.

For all other purposes - the LLC is a separated entity, but for income tax purposes - disregarded entity.

How disregarded entity is reported depends on who is the owner. If the owner is a corporation - all income and deduction of that LLC are reported on the income tax return of that corporation. But if the owner is a physical person as in your situation - all income and deduction of that LLC are reported on your individual income tax return - schedule C - as if you were a solo proprietor.

No need to file form 8832 for that classification because that classification is based on the default rule. However if you elect it to be taxed as a corporation and want to change it back to disregarded entity - then you would use form 8832 and make such election.

Customer: replied 1 year ago.
Item C from form 8832 means "disregard entity" that is the default of the single owner LLC?
Now I have three back taxe liens and my question is that will the liens interfer/ follow with this new single owner LLC? What kind of protection do I have? Is this a suitable solution? Or are there better solutions for my particular situation?
Expert:  Lev replied 1 year ago.

Regarding your tax liens - yes - generally ALL assets which are owned by you may be attached - including the LLC itself and a corporation owned by you.

When we are talking about LLC protection - that doesn't mean protecting from your personal liability.

But that means - if someone will sue the LLC and will win the judgement - your personal assets are protected from that judgement. But not other way around.

If you have a tax lien - the best solution would be to negotiate a payment plan and stay current with that plan.

Customer: replied 1 year ago.
You mean that even they can attach to a future assets and LLc?
How about the last question: Is this a suitable solution? Or are there better solutions for my particular situation?
Expert:  Lev replied 1 year ago.

If you want to run a business - you generally may simply act as a physical person and do not need to have an LLC.

Whether having the LLC is a suitable solution depends on your circumstances.
For some riskier businesses when you want to protect your personal assets - that is suitable. If you want to run the business via separated entity - that also works.

However - if you want to protect the money and other assets from tax levies by putting these into the LLC - that will not work.

If you have a tax lien - the best solution would be to negotiate a payment plan and stay current with that plan.

Please be aware regarding the difference between the lien and levy.

A tax lien is the government's legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government's interest in all your property, including real estate, personal property and financial assets.

.A lien is not a levy. A lien secures the government's interest in your property when you don't pay your tax debt. A levy actually takes the property and/or income to pay the tax debt. If you don't pay or make arrangements to settle your tax debt, the taxing authorities levy, seize and sell any type of real or personal property that you own or have an interest in.

Let me know if you need any clarification this matter.

Customer: replied 1 year ago.
It seems like my question upset you. I'm not looking for a lecture but advise, Don't get me wrong, I'm not interested in putting or hidding asset into a LLC. I have a great service and I know I can deliver. There are lot of circumstance that put me in a bad situation. But I can't run a business just by just acting as a physical person and do not need to have an LLC either. This is not a good advise in my opinion. In the mean time, I need to set up a structure where I can best operate my business without constantly worrry about these issues. Runing business is hard enough. Right?
Expert:  Lev replied 1 year ago.

Sorry for confusion.

If you do need a separate business entity - that is for your business proposes. That is perfectly fine.

However - you are asking for suitable solution - and did not clear identify which problem you want to solve.

I just guessing regarding possible problems you might want to address.

But if you have a tax debt - not to worry about that would not be possible. Regardless your circumstances - that issue with the tax debt should be addressed - and creating a separate business entity will not help you here.

You would need to communicate and negotiate with taxing authorities.

If you will have an installment payment plan in place - that will help to avoid levies and the tax lien would not affect your business operations.

Expert:  Lev replied 1 year ago.

Does that answer your question?

I appreciate if take a moment to rate the answer.

Experts are ONLY credited when answers are rated positively.

If you still have any doubts, need clarification - please be sure to ask.

I am here to help you will all tax related issues.

Customer: replied 1 year ago.
Lev,
To be honest with you, if it was in a public forum then I can absorb the way you answer me.
It is the last thing that I'd pay someone to lecture me. I seriously seek for advice but instead I get lecture from you on how to run a business. I 'd like to work with different expert outhere. Thank you.
Expert:  Lev replied 1 year ago.

I am sorry to have you disappointed.
But if the answer has no value for you - you may simply ignore it.

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