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I am part owner of a digital media LLC in Michigan. Our

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Hello, I am part owner of...
Hello,
I am part owner of a digital media LLC in Michigan. Our income is driven primarily by music royalties. This will be our first year filing and I want to make sure we do it correctly and I'm not sure how to file.
I also wanted to confirm that we do not have to claim the $ as personal income as well. We were told by a CPA that we don't but I wanted to confirm that with someone.
Submitted: 1 year ago.Category: Tax
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1/22/2016
Tax Professional: Lev, Tax Advisor replied 1 year ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,132
Experience: Taxes, Immigration, Labor Relations
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"part owner" - means you are a member of multi member LLC - correct?
So next issue woudl be HOW that LLC is classified for US federal tax purposes.
Under default rules a multi member LLC is classified as a partnership.

The LLC may elect to be treated as a corporation - either C-corporation or S-corporation.

So there are three possible options - and you need to confirm which is related to your situation because the tax treatment is different.

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Tax Professional: Lev, Tax Advisor replied 1 year ago

see page 4
http://www.irs.gov/pub/irs-pdf/p541.pdf

A partner generally recognizes gain on a partnership distribution only to the extent any money (and marketable securities treated as money) included in the distribution exceeds the adjusted basis of the partner's interest in the partnership. Any gain recognized is generally treated as capital gain from the sale of the partnership interest on the date of the distribution.

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Customer reply replied 1 year ago
We plan on filing as a C-Corp not a partnership or S-Corp. It is my understanding that if we file as a C-Corp we are not required to claim any $ as personal income unless that money was distributed in the form of dividends.We are trying to avoid having to pay taxes under the business then also having to claim it personally as well. #1 we pay taxes twice on the same income and #2 it pushes some of our members into a different tax bracket.But the big question is, since the income is in the form of music royalties and no companies are reporting these to the IRS, then how are we supposed to file. Technically it could be considered sales. So there is a lot of confusion regarding how we should approach this.We were thinking just claiming 1 bulk lump sum on a 1099 and calling it day.
Tax Professional: Lev, Tax Advisor replied 1 year ago

You may not just file as C-corporation.
In order to do so - you need to make election with the IRS to treat the LLC as C-corporation.
C-corporation is a separate legal and taxing entity - it files its own corporate income tax return and pays corporate income tax.

Your personal tax liability - is a different matter - you are responsible for YOUR income.
Thus if you receive income form the C-corporation - that income is reported on YOUR individual tax return.
But if you personally receive NO income from C-corporation - you will not have any individual tax liability.

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