Multi-Member LLC (Husband & Wife Only) - Filing tax as a Single Member LLC or Multi-Member

[Jdegezelle]

My wife and I (Husband) own a multi-member LLC, where we are the only members. We live in Minnesota (which is not a community property state). We started the business in 2018, and filed our taxes for 2018 as a multi-member LLC (so we filed a Schedule K) and then reported that information on our personal taxes. For Tax Year 2019, I'm wondering if we still need to file using a Schedule K, or if we can just file our personal taxes and claim the income/loss on those instead of having to file a Schedule K first and then do our personal taxes? Does it matter that we already filed as a Multi-Member LLC for Tax Year 2018? Do we need to fill out and submit Form 8832, Tax Election Change form? If we do fill that form out now, can we use that election change to file our 2019 taxes as a Single Member LLC? If we do file as a single member LLC, will be get a fine because we filed after March 15 and the IRS thinks we should have file by that due date for our multi-member LLC?

[Rick19744]

Responses to your questions:

• As a husband and wife LLC (multi-member) and not residing in a community property state, you must continue to file form 1065, issue K-1's and report the activity on your personal tax return.
• The only reason you would file form 8832 is to make an election to change your entity form for federal tax purposes.  Based on your facts you only have the ability to be taxed as an association and then you would decide whether you want to be a C corp or an S corp.  Either of these choices requires a separate tax form from your personal tax return.
• The only way an entity is a single member LLC is if only one person is the owner.  That is not an option for you based on your facts.

[DianeC958]

Yes, for 2019 you are going to need to file form 1065 for your business.  You can file this as a final return if you no longer want to have the benefits from filing as a separate business.

Some of the benefits are:

Reduced Audit Risk

Have one spouse file as a General Partner and the other Spouse as a Limited Partner to save on Social Security Tax of 15.3%

Limits your personal liability more with a Limited Partner.

If you are going to change to an LLC to file with your tax return you need to file a final form 1065 and then apply and get a new EIN with the IRS designating that you are a disregarded entity.  

[tagteam · Accepted solution]

As long as you are both members of the LLC (i.e., one does not drop out or otherwise leave the LLC), and you do not reside in a community property state, you cannot file as a single-member LLC; you need to file a 1065.

Of course, if the LLC has neither income nor expenditures for the tax year, it is not required to file a return.

See https://www.irs.gov/instructions/i1065#idm140672607580960

[catchinglight]

How about filing in California? It is a community property state. Should husband-wife LLC file as single or multi member LLC? Both TurboTax business and Home& Business need to be purchased if there is also W2 income?

[tagteam]

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@catchinglight wrote:

How about filing in California? It is a community property state. Should husband-wife LLC file as single or multi member LLC? 

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Per Rev. Proc. 2002-69, a married couple who hold their interests in the LLC as community property in a community property state have the option of each filing a separate Schedule C in accordance with their interests in the LLC.

[Mike9241]

the IRS is kind. in a community property state, an H&W LLC does not file a partnership return. you file two schedule C's or E"s splitting everything in proportion to your respective ownership %s.  this assumes you did not elect to have the LLC treated as a corporation  - S or C corp.  if you did the appropriate corporate return would need to be filed by their due date of 3/15/2023 for calendar year corps. 

[catchinglight]

Thank you both for answering the question! It's good news. It sounds like I can just purchase TurboTax home and business to file the return, no need for the business version?

[tagteam]

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@catchinglight wrote:

.... no need for the business version?

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No need for the Business edition if you plan to report on separate Schedules.