Husband single member and wife single member LLC in Florida

[Needllchelp]

My daughter currently has a single member LLC and is an independent contractor and delivers snack products to grocery stores as a route owner in Florida.  Her husband is currently a W2 employee for another company but is about to quit and buy a separate grocery route to deliver bread.  They have been filing jointly with her Schedule C income and his W2 income.  The company they are delivering product for requires purchases to be as an LLC.  Would it be best for her husband to set up his own LLC and could they then continue to file jointly with two Schedule C’s and separate SE tax forms?

It’s their preference to keep tax filing simple and continue with the sole proprietorship format,  and keep the visibility of the separate businesses by using two separate Schedule C’s.

[tagteam · Accepted solution]

If they each have their own business (i.e., they are each sole proprietors), then they can file jointly with each filing a separate Schedule C.

They cannot set up one, single-member LLC and then each file a separate Schedule C on their jointly filed 1040.

You might want to advise them to seek guidance from a local tax professional and/or legal counsel familiar with business organizations.

[Opus 17]

If they each have a separate business, they must each file a separate schedule C to report income and expenses for their own business.   This is separate from the husband's decision to form a single member LLC, that is a legal decision, not a tax decision.  Whether he is a sole prop or a SMLLC, he will file a separate schedule C for his separate business.

There are options to form one business that we could discuss, but you indicate they prefer to keep things separate, so I won't go into those other options unless you ask. 

[Needllchelp]

Thanks!  If my daughter added her husband to her existing LLC would that make them partners and unable to file separate Schedule C’s as Sole Proprietors on a Joint Return?  They are in Florida so thinking it has something to do with Florida not being a Community Property State.

[Opus 17]

@Needllchelp 

Correct.  An LLC with more than one owner/member must file a form 1065 partnership return.  The only exception is if the only two members are spouses and they live in a community property state.  

[tagteam]

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@Needllchelp wrote:

If my daughter added her husband to her existing LLC would that make them partners and unable to file separate Schedule C’s as Sole Proprietors on a Joint Return? 

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Yes, she would then be a member of the LLC (which defaults to partnership treatment)

They would have to file a Form 1065 with a K-1 issued to each of them.

[tagteam]

@Needllchelp 

You might want to tell your daughter that she should consider consulting with legal (or business) counsel since she currently is operating with a single-member LLC and, in Florida, a single-member LLC does not provide sufficient asset or liability protection.

[Carl]

If the daughter adds her husband to her LLC, that makes it a multi-member LLC. That means the single member LLC would be closed permanently and forever, and a new, multi-member LLC would be opened and registered as such in FL.

Personally, the husband would probably be better off (and cheaper) starting his own single member LLC and registering it as such with the state. If you think you'd rather do otherwise, I would "HIGHLY" advise you seek the services of a tax attorney or other professional that is well versed in the matter.

In Florida, a multi-member LLC is required to file a 1065 tax return which is completely separate from the personal tax return. The 1065 return is due by March 15 each year, and the late penalty is $205 per member, per month.

Once the 1065 is completed and filed, a K-1 is issued to each partner which each partner will need to complete their personal 1040 tax return. It doesn't matter if the partner's are married to each other and filing a joint return either. So with a multi-member LLC you increase your filing requirements, as well as the cost of meeting those filing requirements.

[tagteam]

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@Carl wrote:

Personally, the husband would probably be better off (and cheaper) starting his own single member LLC and registering it as such with the state....

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Since you actually reside in Florida (as do I), you should be aware that single-member LLCs do not afford the same protection from potential judgment creditors as do multi-member LLCs. 

As a result, an alternate entity is typically recommended, such as an S corporation, an LLLP, or adding another member (e.g., a spouse) to make the single-member LLC a multi-member LLC.

[Needllchelp]

Thanks!  It sounds like the separate LLC is the way to go.  Definitely want to keep the paperwork and filings to a minimum!  I’m assuming then that they could still file a joint return with separate Schedule C’s and their own SE tax forms.  The only issue holding up going that route right now is acquiring separate insurance for her husband as the insurance carrier isn’t writing new coverage but would be able to add him to my daughter’s existing policy.  If I understand it correctly that would then require her purchasing the route herself or adding him to her LLC.  Adding him to her insurance policy is less expensive but hate to decide business entity structure over saving some insurance premium.

[Opus 17]

@Needllchelp 

I think the ultimate point here is that forming a business or an LLC or a corporation is a legal question that should be answered first, before you worry about how to file your taxes.  While it will be easier to file their taxes if the husband and the wife have separate single member LLC‘s, that may not be the best business solution for them.

I would suggest that they make the best legal and business decision that fits their situation, and then file taxes accordingly, instead of making the business decision based on what kind of tax form is easier.

[tagteam]

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@Opus 17 wrote:

While it will be easier to file their taxes if the husband and the wife have separate single member LLC‘s, that may not be the best business solution for them.

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I agree, at least not without ample business liability coverage as well as a personal umbrella policy.

Again, an in-person consultation with a local tax professional and/or legal counsel should be the first step. I understand that the foregoing may be somewhat expensive, but the fees are one of the costs of doing business and are also generally tax deductible.