LLC change from multi-member to sole proprietor - how to do this and when is it effective.

[Jdegezelle]

I opened a multimember LLC with my wife and myself as the only members in 2018. We filed taxes for 2018 as a multimember LLC, so Form 1065 and then reported it on our personal taxes. 

I am having an EA file my taxes this year (2019), both biz and personal. She said we should change to a sole proprietor and file taxes that way because they are much more simple. I am perfectly good with this but I'm not sure how to do it. The EA said we just need to file taxes as if we are Sole Proprietor and then write a letter the the IRS telling them of this change and that it was effective for the 2019 tax year. Is this correct?

I'm worried I will get fined because they didn't receive the Multi member LLC taxes by March 15th - due to the fact that we will submit taxes as if it were a Sole Prop.

Do I need to fill out Form 8832? Is it retro active for the previous year so that I could file taxes as a Sole Prop I stead of a multi member LLC?

@DianeC958 

[JulieS]

The EA is correct about filing as a sole proprietor. 

Because you filed a Form 1065 for 2018, it would be best to file a Form 8832 to make sure that your choice is processed by the IRS. In Part I, line 6, you can select option c, A domestic eligible entity with a single owner electing to be disregarded as a separate entity. 

In your letter, it would be best to point out that you didn't realize that an LLC owned by spouses is allowed to file a as sole proprietorship. 

Click here for more information.

[tagteam]

You do not need to file Form 8832 and the filing is not somehow retroactive (you are filing a final 1065 for a particular tax year, most likely calendar year 2018).

You might want to read the recommended post in the thread at the link below as it contains comprehensive information on this issue (although it involves a buyout scenario).

https://ttlc.intuit.com/community/business-taxes/discussion/re-purchased-partner-s-50-ownership-of-a...

[Jdegezelle]

I should have mentioned that we live in Minnesota and our LLC was formed in Minnesota, which is not a community property state. Does this change anything?

[Jdegezelle]

Also, being that we are an LLC, if we do file as a sole proprietor do we lose the protection of being an LLC? 

[tagteam · Accepted solution]

The state does not change anything with respect to your federal filing and you do not lose any protection the LLC provides since that is a matter of state law.