File as Parnership or 2 Schedule C's

[usfacs]

My wife and I own and LLC travel business and filed as a parnership the last 2 years with a 1065 and K-1.  TurboTax is recommending we file 2 Schedule C's and report as seperate businesses instead.  It says to split income and expenses 50/50 and to make sure my wife's business description is different than mine.

What does it mean to make sure my wife's business description is different than mine?  We own the same business (LLC) and have one Employer ID.

How do I also bypass filing 2 Schedule Cs and complete a 1065 and K-1 to see the dirrence in the 2 returns?

[Anonymous_ · Accepted solution]

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@usfacs wrote:

How do I also bypass filing 2 Schedule Cs and complete a 1065 and K-1 to see the dirrence in the 2 returns?

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You cannot file two separate schedules, rather than a 1065 with associated K-1s, unless you hold your interests in the LLC as community property in a community property state.

See https://www.irs.gov/pub/irs-drop/rp-02-69.pdf

[usfacs]

Turbotax is forcing me to use the 2 Schedule C's.  Based on your answer, I do not believe FL is a community property state and we need tio file the a 1065 and K-1.  Now I just need to figure out how to do it with TurboTax.  Thank you

[Anonymous_]

You need to use TurboTax Business to prepare a 1065 and associated K-1s for your LLC.

However, you might have answered one of the questions in the interview wrong (or mistakenly checked a box that should not have been checked).

[Vanessa A]

Which state are you in?

Under IRS rules, generally, if you were a joint venture and not a registered LLC, then you would file as TurboTax is recommending with 2 Schedule C's.  However, since you are an LLC, you will still need to file the 1065 and then enter the K-1 on your returns.  

In order to file 2 separate Schedule C's instead of the 1065, all of the following would need to apply:

• "the only members of the joint venture are a married couple who file a joint tax return,
• both spouses materially participate in the trade or business,
• both spouses elect to have the provision apply,
• the business is co-owned by both spouses and
• isn't held in the name of a state law entity such as a partnership or limited liability company (LLC)." Married couples in business

To get rid of the Schedule C's and the errors you are getting you can delete the Schedule C's. 

If you are using TurboTax Online, then you can go back and delete the Schedule C's and do not enter any business information.  To do this select Tax Tools>>Tools>>Delete a Form, then delete next to both your Schedule C's

If you are using the desktop version, you will need to go to forms mode in the upper right hand corner and then click on the Schedule C on the left for both of you then click Delete in the lower left corner.

You will need to use TurboTax Business NOT Home and Business to file the 1065 which will generate the K-1 to enter on your personal return. 

If you are in a community property state and want to change from the 1065 to Schedule C, you would need to file a 1065 to close the business. Then file the Schedule C. 

(Edited 3/7/23 @9:19AM PST) @usfacs

[usfacs]

I have TurboTax Home and Business which includes the 1065 and K-1.  The program keeps suggesting the 2 Sched C's and will not let me use the correct forms.  I even started a new return to see if it wouold fix it and it does not.

[Anonymous_]

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@usfacs wrote:

.....I do not believe FL is a community property state....

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Florida is not a community property state, but there is an opt-in provision that was recently passed into law. it is complicated and almost certainly not anything relevant to your scenario. 

Again, you need to file a 1065 and issue K-1s with TurboTax Business and also read the interview questions carefully.

[Anonymous_]

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@usfacs wrote:

I have TurboTax Home and Business which includes the 1065 and K-1. 

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 The Home & Business product does not include Form 1065.

TurboTax Business (which is different and separate and apart from Home & Business) includes Form 1065.

[Opus 17]

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@usfacs wrote:

I have TurboTax Home and Business which includes the 1065 and K-1.  The program keeps suggesting the 2 Sched C's and will not let me use the correct forms.  I even started a new return to see if it wouold fix it and it does not.

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No.  Home & Business does not prepare a 1065.  It can include the K-1s on your personal tax return, but to prepare the 1065 you need to use Turbotax Business, this is a separate program from Home & Business.  You will have to purchase Turbotax Business to prepare the 1065, then you can use any version Deluxe or higher to include the K-1s.

Home & Business is giving you incorrect advice because it is not programmed to understand your situation.  A husband and wife business can be reported on 2 schedule Cs if and only if...

a. the business is not incorporated and not organized as an LLC, or

b. the business is organized as an LLC in a community property state and the only two members of the LLC are the spouses.

Because you do not fit those conditions, you must prepare a 1065 first. 

Note the deadline for filing form 1065 is March 15, not April 15, and the penalties are substantial, unless you apply for an extension before March 15. 

https://turbotax.intuit.com/small-business-taxes/

[Anonymous_]

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@Opus 17 wrote:

Home & Business is giving you incorrect advice because it is not programmed to understand your situation.  

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Home & Business will provide the correct information for a married couple partnership, but not for an LLC with both spouses as members. The problem is if the choice Both of Us is selected, the program will prevent the user from progressing beyond that point in the Schedule C section and that could be the issue here.

[usfacs]

Thanks to all.  I resolved the issue by getting the Business SW to do the 1065 and K-1.  Not happy about needing 2 SW versions, but it will work.