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ElSol
New Member

Form 1065 for Single Member LLC

In 2018, my wife and I formed an LLC for pass-through self employment income (mostly from my wife who is a consultant). Because we had two members, we filed our 2018 return as a partnership using Form 1065 and issued ourselves K-1s which went onto our 1040.

 

I've now read that our LLC is considered a disregarded entity / Single-Member LLC because we live in California, a community property state. I have read that we should not have gone the 1065/K1 route, but rather should have reported this directly on Schedule C. 

 

But I'm not sure if that's accurate, or if this is going to be a problem.

 

I'm now working on 2019. Should we:

- Continue filing the LLC with 1065/K1?

- Switch to Schedule C?

- Amend 2018?

 

Note that we'll wrap up the LLC in 2020. I also have a Solo 401k for 2019, which is what got me investigating this.

 

Thanks!

4 Replies
rjs
Level 15
Level 15

Form 1065 for Single Member LLC

Because you are in a community property state you have a choice of treating your LLC as a partnership or as a disregarded entity. And you can change your choice from year to year. So it was perfectly valid to file Form 1065 for 2018. There is no need to amend that. For 2019 and 2020 you can choose either option.

 

Critter-3
Level 15

Form 1065 for Single Member LLC

You do NOT have a single member LLC since there are 2 of you ... however you can either continue filing the Partnership return (which I highly recommend)  OR  filling in TWO  Sch C forms  (one for each of you).  

Carl
Level 15

Form 1065 for Single Member LLC

You were either misinformed, or misunderstood the information you were provided.

A multi-member LLC is *required* to file a 1065 partnership return. However, there is an exception for a community property state.

In a community property state you can still file the 1065 and issue each owner/partner a K-1. But if the below conditions are met, you have the option for each owner to split all business income/expenses right down the middle and each owner file a SCH C reporting their half of everything. This is allowed by the IRS if "ALL" of the following conditions are true.

1) There are only two owners of the multi-member LLC

2) The two owners are married to each other as of Dec 31 of the tax year.

3) The two owners who are married to each other will be filing a joint tax return.

So there's nothing wrong at all with you having filed the 1065. Even on the K-1's all of your income/loss is split down the middle anyway, unless your written partnership agreement filed with the state specifically and explicitly states otherwise, and anything other than a 50/50 split is legally valid in your state.

Besides, it's easier and simpler in a community property state to go the 1065 route anyway. Makes things simpler when the unexpected happens - such as the death of a partner, a partner sells or otherwise transfers their share of the partnership to another, or an additional partner is taken on making the number of partners more than the two who are married to each other and filing joint.

 

 

ElSol
New Member

Form 1065 for Single Member LLC

Thanks ... this (and the other responses) clear it up quite a bit. We do meet all the requirements for Sched C, but we may as well continue with 1065/K1. I was freaking out because I did find one post where the person was saying that filing the 1065 was flat wrong and could trigger an audit. And since I read it on the internet it must be true lol. But what you and the other responders are saying makes perfect sense.

 

My wife is actually a CPA, and she thought we'd done it right. But she hasn't done tax practice for a very long time so she was a bit unsure of herself. 

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