We formed Husband-Wife co-owners LLC in TX in 2017 and received the notice from IRS to report 1065. Do we need to file 1065 since we didn't have any income in 2017?(We did have some expenses.)
Are we eligible to change to disregarded entity and file the income on our joint tax return as schedule C? If eligible, how to change it?
Yes, you need to file a partnership for 2017, if you have expenses to deduct. To stop having to file a partnership return, you need to dissolve your LLC entity with the state of Texas. I can't provide instructions on this because it's a legal matter, but you can ask your state: https://www.sos.state.tx.us/corp/termreinfaqs.shtml#term1
Without a LLC entity, you qualify for the Qualified Joint Venture, which allows married couples who work together to split their activity on their schedule Cs. Learn more about this at the IRS here: https://www.irs.gov/businesses/small-businesses-self-employed/election-for-married-couples-unincorpo...
Note, all LLCs are disregarded entities. The IRS doesn't have a tax form for LLCs. Instead, if you have 1 member, you default to be taxed as self-employed (schedule C with personal return), but if you have 2+ members then you default to be taxed as a partnership (form 1065 with schedule K-1s for each partner/member).
So, if you form a single member LLC, then the default is to be taxed as self-employed on a schedule C (because there's only 1 member ).