Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax

An LLC electing to be taxed as an S corporation. Do the chart

Customer Question
An LLC electing to be...
An LLC electing to be taxed as an S corporation. Do the chart of accounts mirror that of an LLC or Corporation?

The LLC had two members each with 1,000 in there capital accounts. One member (b) leaves and the company purchases his interest for $25,000.

Two months later another member(c)purchases the 50% interest for $30,000.

I've read that an LLC would book $29,000 of goodwill to member A's capital account, though it would not increase his basis so A and C would have equal capital accounts.

But since the LLC elected S corporation status I've been told the capital accounts do not have to be equal.

Should I not book the goodwill?
Submitted: 4 years ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Answered in 37 minutes by:
3/1/2013
Tax Professional: R. Klein, EA, Enrolled Agent replied 4 years ago
R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 3,375
Experience: Over 20 Years experience
Verified

Randalltax :

The chart of accounts is customized to each company. It varies little based on the type of entity.

Randalltax :

The issue over the equity interest has a lot to do with how the membership interests were sold or exchanged.

Randalltax :

Did Owner B sell his interest to Owner C directly, or did Owner B redeem his interest back to Owner A or to the entity?

Randalltax :

How about how did Owner D acquire his interest?

Randalltax :

How have you allocated the ownership of the company? Is it 50/50 A and D?

JACUSTOMER-7w18h5xk- :

When I ask about chart of accounts, I mean do I set up paid in capital or member interests?

Randalltax :

There are capital accounts representing the equity of each member

JACUSTOMER-7w18h5xk- :

Owner B sold his interest back to the company. The company issued a check to him.

Randalltax :

The original basis needs to be tracked for each member

Randalltax :

Did B receive a gain, loss, or get exactly his money back?

JACUSTOMER-7w18h5xk- :

Only 3 owners. B sold his shares back to the company.

JACUSTOMER-7w18h5xk- :

C then bought 50% interest from the company.

Randalltax :

Did B get his money back, or have a gain or a loss?

JACUSTOMER-7w18h5xk- :

B would have a loss. B beginning of the year basis plus his allocated earnings was more than the $25,000 received.

Randalltax :

OK. So you distributed to him his portion of the allocated earnings, plus only a portion of his equity investment, correct.

Randalltax :

That left a portion of his equity in the company, which is you. So this was allocated to your share. Now new investor C comes in and his equity account starts at $30K or whatever he invested.

JACUSTOMER-7w18h5xk- :

The $25,000 was a legal transaction covering his entire interest in the company.

JACUSTOMER-7w18h5xk- :

Yes, C invested $30,000. Member A's capital is $1,000 plus his share of current year earnings.

Randalltax :

OK, then C's in for $30K. simple.That's his equity position to start.

Randalltax :

Doesn't matter that your s in $1K or $100K.

JACUSTOMER-7w18h5xk- :

OK, I am confused about the books being accounted for as an LLC or more like a corporation.

Randalltax :

As to what?

JACUSTOMER-7w18h5xk- :

I thought that an LLC would distribute earnings based on their invested capital positions, but I guess not, you look to the operating agreement?

Randalltax :

If you are keeping your books to "tax", which most companies your size do, then it is treated like S Corp all around.

Randalltax :

Unlike a partnership, which IS different, members shares do not need to be the same as their equity investments

Randalltax :

1 member buys 99% for $100 and member 2 buys 1% for $50,000. You can do that.

Randalltax :

Yo uthen distribute profits per membership share.

JACUSTOMER-7w18h5xk- :

OK, so now I have Paid in Capital A - $1,000 and Paid in Capital B - $30,000. Then 2 retained earnings accounts to track their basis.

Randalltax :

That's it.

JACUSTOMER-7w18h5xk- :

Ok Thank you.

Randalltax :

PLease remember to take a moment and rate our answer. It is the only way we receive credit for assisting you today!.Thank you!

Ask Your Own Tax Question
Ask R. Klein, EA Your Own Question
R. Klein, EA
R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 3,375
3,375 Satisfied Customers
Experience: Over 20 Years experience

R. Klein, EA is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,310 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,695 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

3,375 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
In a LLC partnership. Two partners equal partners. No
In a LLC partnership. Two partners equal partners. No employees. Each putting max into their SEP accounts. Does the contribution have come from the partnership cash account or their personal accounts.… read more
abci168
abci168
Principal
27 satisfied customers
A partner sold his interest in an LLC to the other partner.
A partner sold his interest in an LLC to the other partner. He still receives distributions, which are handled as payments to a retiring partner according to Internal Revenue Code §736(a). The questio… read more
Richard
Richard
Tax Attorney
Doctoral Degree
4,310 satisfied customers
Tax Experts Rental building was purchased by partnership
Tax ExpertsRental building was purchased by partnership (LLC). Ownership structure is 50% A, 25% B, 25% C. B and C will be replaced with a new owner D (single member LLC). New owner will pay off B and… read more
socrateaser
socrateaser
1,031 satisfied customers
Interested in Loss Carryback. Owner/manager of a TX LLC
Interested in Loss Carryback. Owner/manager of a TX LLC filing Federal tax as a C Corp. Tax year 2016 had net income of about $32k and tax liability of about $6k. For tax year 2017 looks like will hav… read more
abci168
abci168
Principal
27 satisfied customers
I have a LLc partnership and having difficulties with my
I have a LLc partnership and having difficulties with my partner. He has been unresponsive. I do not have a written agreement with him however I do have the past 3 years K1 statements showing I am a 30% partner. I have two basic questions. … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I am 50% partner in an LLC, taxed as partnership (form
I am 50% partner in an LLC, taxed as partnership (form 1065). The other 50% partner is my friend. This LLC's only assets were 2 single family houses, which we rented out. In 2016 we have sold both of … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
I have a 2 members LLC (LLC1) taxed as a partnership which
I have a 2 members LLC (LLC1) taxed as a partnership which owns real estate and a portfolio of bonds. I want to transfer the real estate to another newly formed LLC (LLC2) with the same membership str… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
My LLC partnership K-1 form shows nothing in Box 19 and
My LLC partnership K-1 form shows nothing in Box 19 and shows $$$ in box 14 A and C. I have no problem with that, but when trying to refinance my home the bank refused to consider the business income … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
A Nevada partnership (LLC form in Nevada) own property in
A Nevada partnership (LLC form in Nevada) own property in Nevada. in 2016, the partnership hire a manager in California to manage Nevada rental property (this manager is show on the Nevada Secretary s… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I have a question regarding capital accounts, distributions,
I have a question regarding capital accounts, distributions, and proceeds of a portion of shares of a K1. … read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
Regarding termination of partnership LLC from multiple
Regarding termination of partnership LLC from multiple member to single member: Partner A buys out partner B. Trying to calculate basis for each partner, capital gains, ordinary losses, etc. Also need… read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
How are the proceeds of sale of a LLC interest taxed; as
How are the proceeds of sale of a LLC interest taxed; as ordinary income or as capital gains? … read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,215 satisfied customers
I have an LLC partnership that owns a building. It is owned
I have an LLC partnership that owns a building. It is owned 25% by one PA, 50% by another PA and 25% by an individual. These PA's and individuals are my clients. The PA's are law firms and are tenants… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,215 satisfied customers
We made a distribution to cover Partnership LLC members
We made a distribution to cover Partnership LLC members taxes. What is the correct entry? … read more
keeperumiami
keeperumiami
Sr Financial & Tax Consultant
Bachelor\u0027s Degree
1 satisfied customers
I have an LLC taxed as a partnership with 2 general partners
I have an LLC taxed as a partnership with 2 general partners owning 50% each. They want to sell half of their interest to new incoming partners. Thus the existing partners will go down to 25% each and… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
A Texas LLC is taxed as a partnership, if it changes to a
A Texas LLC is taxed as a partnership, if it changes to a Sub S Corporation are there any taxes due?… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
What is tax implication if LLC "partnership" filing taxes as
What is tax implication if LLC "partnership" filing taxes as a Sub-S swaps its mailing list for an outstanding payables balance? Or licenses its mailing list to the vendor with the payable crediting t… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
An LLC with 2 member is taxed as an LLC partnership, can
An LLC with 2 member is taxed as an LLC partnership, can both members be limited or does one have to be general… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x