You'll need to sign in or create an account to connect with an expert.
If you and your spouse are both members of the LLC, then it is a multi-member LLC. If you do not live in a community property state, the multi-member LLC has to be treated as a partnership for income tax purposes. The LLC has to file a partnership tax return, Form 1065. The partnership tax return will include a Schedule K-1 for each member. You have to enter information from your Schedule K-1 in your personal Form 1040 tax return.
If you do live in a community property state, you have a choice about how to treat the LLC. One option is to treat it as a partnership, as described above. The other option, if you and your spouse are the only members of the LLC and you hold your interests in the LLC as community property, is to treat the LLC as a "disregarded entity." That means that you file your tax return as if the LLC didn't exist. You and your spouse would each file a Schedule C for your respective shares of the business income and expenses.
The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
We live in Florida where we need not pay income tax. Is there any benefit if I were to share % ownership with my spouse? One of the pitfalls was when I inquired in the bank, they need him if he has more that 10% stake at the company. I need to understand Federal tax implication or if there is any specific benefit in adding spouse to LLC at all?
On the downside, if your spouse and you are members of the LLC (a multi-member LLC), you will have to file a 1065 - partnership return - with the IRS each tax year. No filing will be required in Florida, however.
On the upside, multi-member LLCs provide asset protection whereas single-member LLCs in Florida do not.
Ref https://www.alperlaw.com/blog/single-member-llc-in-florida
If you're a single-member LLC, you might want to secure legal advice with respect to your choice of entity since you're in Florida.
If you live in Florida, since this is not a community property state, then the tax benefits would depend on other things such as how you file, your overall tax situation and if he materially participates in the LLC. If you file a joint return, there may be no tax benefits at all since the income will still be reported on your joint return depending on his participation level.
If you file separately, and he has additional income, this could have him pay more in taxes. If he has no other income, it may not have any affect at all on your overall tax situation.
It would greatly depend on if he materially participated in the LLC. If he does not, then this would be investment income on his side and his portion would not subject to Self-Employment Tax, whereas yours would be since you would be materially participating.
"Material participation tests.
You materially participated in a trade or business activity for a tax year if you satisfy any of the following tests.
You didn’t materially participate in the activity under test (7) if you participated in the activity for 100 hours or less during the year. Your participation in managing the activity doesn’t count in determining whether you materially participated under this test if:
Participation.
In general, any work you do in connection with an activity in which you own an interest is treated as participation in the activity." Publication 925
You can use TurboTax Tax Caster to play around with different scenarios to see how it will affect you when you enter all of your information.
Still have questions?
Questions are answered within a few hours on average.
Post a Question*Must create login to post
Ask questions and learn more about your taxes and finances.
nicholas-corley
Level 1
priti-kansakar
Level 1
hativered
Level 2
sac428
Level 1
cparke3
Level 4