How to treat all and depreciating Office supplies when your business changes from a Sole Proprietorship to a Multi Member LLC (treated as Partnership not S Corp)?

[rjkoz]

I'm using Turbo Tax Home & Business and TT Business for the Multi Member (2) LLC.  Business has been a Sole Proprietorship since 1998, but mid year 2016 I changed the entity to an LLC (new EIN and FL state LLC filed).  I've always claimed a Home Office with Office equipment and depreciation using TT Home & Business..  I'm using TT Business to obtain my 1065/K1s, so it's not just as easy as making an entity change; I'm starting an LLC and Ending the SP.  But all the Office Supplies need to move to the LLC.

The SP is not selling the Equipment, Not Gifting, Not Destroying, etc, etc, - the only thing I can see to do is convert them to Personal Use and then Contribute them as my portion of Capital Contribution to the LLC at FMV - while the 2nd member matches the amount with Cash.

Will this fly with the IRS or is there a better way?

Thank you!

[DS30 · Accepted solution]

This is the correct way to get the old business assets into the new LLC. You will be considered to have contributed the FMV of both the office supplies and the office assets to the new business and will include the amount of these contributions as part of your capital contributions.

Please note that if you are expensing the supplies under your Schedule C, then they will have a zero "0" cost basis.

[rjkoz]

Your answer makes sense but you really didn't explain how to move or transfer the assets from XYZ Sole Proprietorship in Turbo Tax Home & Business, to the (Multi Member) ABC LLC ?

[DS30]

You will just need to remove the assets fromm your sole proprietorship business and then add them to your LLC business. When adding your office asset, you will debit the asset account and credit the capital account for the FMV of the asset contributions. There is no automatic way to do this. You will need to manually enter this information.

[rjkoz]

Thank You, I didn't know you could just Delete an Asset since it was used in the Sole Proprietorship for 9 months of the TAX year.  I thought I had to wait until next year to remove them.  Thanks for your reply..

[DS30]

Just make sure that when you remove the asset from the Sole prop business that you don't just delete it but "sell" it. This way up will be able to claim the depreciation in the current year on Sch C. Just make the sales price equal the cost less depreciation so that the net effect of the asset sale is zero "0".

[rjkoz]

I should have responded sooner about your recommendation, but I think you needed more facts which I didn't include...  The asset is a Computer which was put into service about 1.5 years ago - and I used Section 179 on it then (in 2015), so the present Special Depreciation and Depreciation are both 0.  Please keep in mind, I disposed of the Sole Proprietorship on 09/30/16..

Computers have a lifespan of 2-3 years, and to keep it simple lets say when new cost $1,000.00.  And if you still say the asset needs to be a "Sale" who am I selling it to, it's going to be property transferred by a Member as a Capital Contribution at FMV.  The Member was the owner of the Sole Proprietorship which changed to the new Multi Member LLC?  

Why can't I just Delete it or turn it into Personal use until it gets contributed to the LLC?