Got stuck at 1065 form filing using Turbotax Business. Please help!

[sallysynge]

Hi! We have a holding LLC (H) taxed as partnership and it 100% holds several subsidiary LLC, each as single member disregarded that operates as rental property owner in different states than H's state. 

When filing 1065 using TurboTax Business version, we typed in H's info as holding LLC, not as rentals because it does not directly own rental houses.  

Turbotax is asking us for K-1 from subsidiaries, but we do not have those because they are all disregarded and we never received any.  See the quoted help screen from TT. 

"A Schedule K-1 is a form used by pass-through entities to pass along any income, loss, credits, deductions and other separately reported items on a Schedule K-1 to an ownership partner (that is an individual or another entity).

Do not confuse the Schedule K-1 received with the one a pass-through entity must prepare for its own partners."

It does not allow us to type in subsidiary's income anywhere else. We basically need to let the system know the linkage between H and its subsidiaries thru EINs and K-1s. 

We tried using TT home&business to fill out each subsidiary's income/expense on schedule C but that does not generate K-1 either. That only assumed we the owners directly own those subsidiaries and combined them to 1040.  Any help is greatly appreciated!

[PatriciaV]

If the ownership of the LLCs is not identical to the ownership of the partnership, you should seek the advice of a local tax professional who can address your specific, complicated situation.

But if the owner(s) of the disregarded LLCs are also the partner(s) of the holding company, the IRS "looks-through" the disregarded entities and assigns the activity from the investments to the "holding" partnership. It's as if the single-member LLCs don't exist for tax purposes.

In TurboTax Business, indicate under Business Info >> About Your Business >> Type of business that you rent real estate to others. Then under Federal Taxes >> Rental Real Estate enter each LLC's activity as a separate rental property. These entries will consolidate the "subsidiary" activity under the "holding" partnership to be reported to the partners on Schedule K-1.

Be sure to file all necessary State Income tax returns as well.

[sallysynge]

Thank you for the reply. But we are unable to find a local tax professional who is capable of addressing our specific needs and that's why we had to come here for help. The owner of disregarded LLCs ("subsidiaries") is the partnership ("holding company"), and the holding partnership is owned by some people as partners. So how do subsidiary LLCs report their income to the holding partnership on form 1065? Schedule K-1 of 1065 seems to be only for passing through the partnership interest to its partners. Thank you again for anyone who can help.

[PatriciaV]

In this case, you can follow my instructions to report the subsidiary LLCs as rental activity for Form 1065. The net income/loss will flow through to the partners as follows: LLC >> Partnership >> partners (K-1s).

To be clear, the individual LLCs will not file separate tax returns. Only the partnership will file Form 1065, which will include K-1s to send to the partners. They in turn will include the K-1 activity on their personal tax returns.

You do have the option to use TurboTax Live Full Service Business, which allows you to work one-on-one with a business tax professional who will prepare your return.

[sallysynge]

Thank you. For federal 1065 we are kind of clear. But not sure how to proceed with state. When we enter state tax in TTB, it automatically populated our holding LLC as the entity to file for those states, which is incorrect. We need to file as disregarded entity for each state and the software automatically point us to sch C in personal 1040 when we specify it as "disregarded, single member LLC", which is not going to help either. Do you have the right state business tax functions included?

[PatriciaV]

Please clarify in which state you are filing business returns.

[sallysynge]

AL, GA, MD and potentially VA (not figured out it's required yet for single member LLC)

[PatriciaV]

While you would NOT file a State tax return for a single-member LLC in those states, you are required to a file State income tax return for the holding company LLC to report the income from each state.

According to the Alabama Dept of Revenue, a single member LLC should not file a separate Form 65.

Per the Georgia Instructions for Form 700, under Filing Requirements, an LLC is required to file a Georgia return only if also filing Federal Form 1065.

The Maryland Admin Release No. 25 states that if an LLC has elected to be classified as a disregarded entity for federal income tax purposes, [it] will not have to file a separate Maryland income tax return.

According to the Virginia Dept of Taxation, only pass-through entities are required to file a tax return; single-member LLCs are specifically excluded from the list of pass-through entities.

[sallysynge]

Thanks. For Alabama, they do require business privilege tax, which we already paid an initial fee last year for the entity. They do need form PPT filed but we can extend it. 

Thanks for MD and VA. But for AL and GA, we can only do it on paper because you don't have those (AL form PPT and GA 700)?

[PatriciaV]

Alabama Form PPT (print and file) and Georgia Form 700 (e-file or print) are both available for TurboTax Business.

You can look up business state forms here: State Forms Availability for TurboTax Business

[sallysynge]

Could you explain why GA 700 is needed? It is for partnership but my GA entity is disregarded and single member LLC.

[AliciaP1]

It is required because the holding company files as a partnership.

Per GA website:

You are required to file a Georgia Income Tax Return Form 700 if your business is required to file a Federal Income Tax Form 1065 and your business:

• Owns property or does business in Georgia
• Has income from Georgia sources; or
• Has members domiciled in Georgia

The Form 700 is an information return and as such the income tax is paid by the partners and not the partnership.

This also applies to an LLC that is treated as a partnership for federal income tax purposes.

@sallyaynge

[sallysynge]

Thanks. But for GA form 700, should I file as my holding company just as in federal? Or file as Georgia SMLLC entity? If it's GA entity, I have to start a new return

[PatriciaV]

Your partnership files Form 1065 and has income sourced in Georgia. Therefore, the partnership is required to file a Georgia State income tax return.

As stated previously, you will need to file a State Income tax return for the partnership in any state where you had income that flowed through the SMLLC to the partnership.

[sallysynge]

Thanks. We understand those. Problem is: in form 700, should we fill in our holding company's info (name, FEIN) or the Georgia entity's info at top of the form? I called the state and they had conflicting information.