Mid-year I switched from a sole proprietorship to an LLC-partnership w/ me and my spouse. Prior years I have filed with Turbo tax self-employed. Can I still use that?

[JulieCo]

It depends.  If you do not live in a community property state, then the LLC with you and your spouse as members will have to file a separate tax return for your LLC business.  This will be a 1065 form and it will require TurboTax Business software to create the form. The tax form would need to be created for the period starting when the LLC was created to the end of the year.  (If you live in a community property state, the spouse members LLC is considered a disengaged entity and can be filed like a single member LLC which does not require the 1065 form and can file on your personal return utilizing TurboTax Self Employed -- just like your sole proprietor business.)

But, if you do need to create the 1065 form, you will also need to create a personal tax return, in addition to the LLC business tax form.  For 2017, you will need to include your sole proprietor business income and activity from the beginning of the year until your LLC was formed on your personal tax return.  This can be done in TurboTax Self Employed.  If a 1065 form is required to be filed for your business as noted above,  a K-1 form will also be generated that each of you will then use to complete your personal tax return.  

TurboTax Business (CD or download)

[Mblair]

In terms of taxes, how do you go about switching from a sole proprietorship to a sole proprietorship LLC in the middle of the year? @JulieCo 

[tagteam]

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@Mblair wrote:

In terms of taxes, how do you go about switching from a sole proprietorship to a sole proprietorship LLC in the middle of the year? @JulieCo 

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There is essentially no difference, for federal income tax purposes, between a sole proprietorship and a single-member LLC unless an election is made to be treated as a corporation for tax purposes.

If a single-member LLC does not elect to be treated as a corporation, the LLC is a "disregarded entity," and the LLC's activities should be reflected on its owner's federal tax return.

See https://www.irs.gov/businesses/small-businesses-self-employed/single-member-limited-liability-compan...

[Mblair]

@tagteam Even if you go from using your Social Security number to a new EIN with the LLC?

[tagteam]

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@Mblair wrote:

@tagteam Even if you go from using your Social Security number to a new EIN with the LLC?

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Correct. Unless the single-member LLC makes an election to be treated as a corporation for federal tax purposes, it reports income/expenses on Schedule C, the same as a sole proprietorship (i.e., the LLC is disregarded for federal income tax purposes). Obtaining a new TIN does not change the foregoing.

[Carl]

I see some incorrect information in this thread and will take the time to correct it here.

Mid-year I switched from a sole proprietorship to an LLC-partnership w/ me and my spouse.

One post states "there is essentially no difference". The fact is, there is a big difference when going from a single owner business that is either a sole proprietorship or single member LLC, to either a Partnership or Multi-member LLC.

Your sole proprietorship is considered a disregarded entity by the IRS and as you know, gets reported on SCH C as a part of your personal 1040 tax return. (Doesn't matter if you're filing joint either.)

Whereas your Partnership or Multi-Member LLC has to file it's own physically separate tax return on IRS Form 1065. The Partnership will then issue each partner their own individual K-1 which each partner must enter into their personal 1040 tax return. It also doesn't matter if the two partners are married and will be filing joint. That just means you'll be entering a K-1 for you and a K-1 for your spouse on your joint personal 1040 tax return. 

So as to save time for informing you of how to do this, I need to know a few things so I don't waste your time covering items that just don't apply to you and that may just add to the confusion.

 - Does the sole proprietorship have any business assets that need to be transferred to the partnership?

 - Does the sole proprietorship carry an inventory that needs to be transferred to the partnership?

 - Does the sole proprietorship claim *ANY* vehicle use and if so, is that vehicle 100% business use only? Or less than 100% with the percentage of business use varying each year?

- On what "exact" date was the partnership "open for business"?

- On what "exact" date was the sole proprietorship "open for business?"

With the above information I can walk you through doing this correctly. Oh yeah, it also matters in what tax year this occurred. Hopefully not 2018. If it occurred in 2018 then your partnership return is late. The late filing penalty for a partnership return is $200 per month, per partner. So that would mean you've already accumulated $2000 in late filing penalties, and that jumps to $2,400 on Sept 16, 2019.

[tagteam]

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@Carl wrote:

I see some incorrect information in this thread and will take the time to correct it here.

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No need to correct anything; the reason you see some "incorrect information" is because you did not read the post which prompted the response that there is "essentially no difference", which is not a response to the original post but a response to an add-on post.

Again, there is little, if any, difference, for federal income tax purposes between going from a sole proprietorship to a single-member LLC. Read the add-on posts before responding.

Further, the original post to which you read and responded to already has an accurate response and appears to be a couple of years old.

[Carl]

@tagteam yep! The add-on poster definitely got me!

[soclbtrfly]

Hope you can help me. We switched our company from being a single business owner to a multi-memember LLC (husband and wife as partners) mid year. Do I need to file the first part of the year on my personal taxes as self employed and file only as of the LLC date on our corporate taxes or do I file the whole year on our corporate taxes?

Thanks for your help!

[MaryK4]

Yes, you will want to file the first part of the year on Schedule C.  You can file the Partnership return with a short tax year if you want/need to keep it on a calendar year tax schedule, using the date of change in structure as the start date.

Please note:

An eligible entity uses Form 8832 to elect how it will be classified for federal tax purposes, as a corporation, a partnership, or an entity disregarded as separate from its owner.

Do You Need a New EIN? | Internal Revenue Service

@soclbtrfly

[soclbtrfly]

Thank you! 

[abholcomb]

Mid year I switched from a single owner LLC to a partnership. I gifted 50% of the business to my new partner. We filed an 8832. Do I report all income pre-partnership on my Schedule C as I have in the past, and all income from date of partnership on the 1065? Also, how do I reflect the gift? Is that a loss on my Schedule C?

Thank you.

[ZoltanB45]

You need to split the income from the date you began operating as a partnership. I am assuming any 1099 you received (if you received any) were written to the proper entity or Employer Identification Number. 

This is a new entity, correct with a different EIN. You do not record any loss for taking on a partner for free. You guys just became partners. The partnership just opened so you guys would deal with percentage splits. If you had been in business together and you bought out the other partner, that would be recordable.

Now If you are saying that the SMLLC was an asset of yours, you might be able to record the loss on your personal return, based on the valuation of the business. That would be a stretch to do so.

[abholcomb]

The EIN has not changed. I got the EIN when I began the LLC 1/1/2020. I filed schedule C for the business income in 2020. I added a partner to the LLC 7/1/2021, by gifting him 50% of the shares in the business. Business assets at that time included $3,000 in tools/equipment and $16,000 cash. We filed form 8832 to notify IRS of change in filing status. Do I file schedule C for income (P & L) until 6/30/2021 and then 1065 from 7/1/2021, or do I file 1065 for all of 2021 since I gifted half the business? Also would like to know how and where to report the gift.