How do I balance Form 1065 Schedule L for my 2 person LLC with no income and only expenses.

[Jdegezelle]

I started an LLC in 2018 with my wife. We only had startup expenses during 2018 and put all purchases on a credit card.  We invested no money into the business except enough to pay the monthly minimum credit card balance. On the Schedule L, should I only list the end of year credit card balance as a current liability? I believe doing this would make the Schedule L out of balance. How do I handle this situation? Note, the expenses for the year were entered into the appropriate boxes on the Form 1065. Do I need to list the expenses for the year on the Schedule L as well and the credit card balance?

[MaryEllen]

Your business has some cash in the bank because you have been making your credit card payments from the money you are putting into the business. You do have a separate bank account for the business, right? 

The cash in the bank is an asset. The credit card debt is a liability. If you paid for equipment you are not deducting as an expense, that would be an asset. The difference is the partner's (member's) equity. 

Unless you are in a state that requires the balance sheet (TurboTax Business will tell you this), you can probably skip the balance sheet. You have to have revenue of at least $250,000 or assets of at least $1,000,000.

[Jdegezelle]

I appreciate your response, thanks! The way I read Schedule B question 4, about the partnership satisfying ALL 4 requirements (less than $250k receipts, less than $1mil assets, filing Schedule K on time, and not filing/not required to file Sch M3) I do not meet the 3rd or 4th requirement - not filing on time and the LLC is filing. Based on that information, I believe the Schedule L (balance sheet) is required. I do have a separate business bank account. The expenses were all services (no equipment or assests). Could you explain further what you mean by "the difference is the partners equity" please?

[MaryEllen]

Partners/members have accounts called equity. When you put money into the business, you increase the equity account and the bank account. When you pay a bill, you decrease cash and increase the expense account (not affecting the equity account.) If you pay an expense by credit card, you increase the credit card balance and increase the expense (again not affecting the equity account).  If you are following all these rules, you should have equity accounts equal to the amount of cash to added to the business. At the end of the year, there is a closing entry that reverses the total income and expenses and adjusts equity.
In TurboTax Business, there is interview for the equity accounts to help you get the right balance, but basically it should end up as the amount of cash minus the balance on the credit cards, probably a negative number at this time.

[Jdegezelle]

Understood. If it is a negative number, will I need to provide justification/explain why it's negative on a separate worksheet?

[MaryEllen]

No. We include the calculations on a worksheet in the return already.

[MaryEllen]

You do want to be sure to say that you are 'at risk' for all of the losses so that you get the deduction.