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Single-member LLC taxed as a corporation through TurboTax?

I own and work in a single-member llc. I manage my personal and business finances entirely separately and would therefore like to have that LLC taxed as a corporation. What steps need to be taken to have that business income taxed as a corporation and what product (or products) from TurboTax will allow me to accomplish this?

I've done a lot of searching and can't find a clear guide. Are there forms I need to file outside of TurboTax? Will I ultimately have to use TurboTax Business to file for the business and a separate product for my personal taxes? What order do the steps need to be taken in, where can I find appropriate forms, and what deadlines do I need to be aware of?

Thanks in advance!

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Level 15

Single-member LLC taxed as a corporation through TurboTax?


@MARSurf wrote:

What steps need to be taken to have that business income taxed as a corporation and what product (or products) from TurboTax will allow me to accomplish this?


The very first step you should take would be to seek an in-person consultation with a local tax professional where you can state your goals, concerns, and receive relevant and accurate advice and information.

 

TurboTax Business contains the forms (below) necessary to make the elections for your LLC to be taxed as a C or an S corporation and also to prepare the appropriate income tax returns for those entities. Be advised that the election forms must be timely filed.

 

Form 8832: Use to elect to be taxed as a C corporation.

 

Form 2553: Use to elect to be taxed as an S corporation.

 

Note that TurboTax Business cannot be used to prepare your individual income tax return (e.g., Form 1040) so you would need a personal version of TurboTax for that purpose in addition to TurboTax Business.

 

Again, seek professional advice prior to making a decision on changing entities for tax purposes.

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18 Replies
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Employee Tax Expert

Single-member LLC taxed as a corporation through TurboTax?

 An LLC is a flow-through entity.  This means the income is reported on Schedule C for a single-member LLC or a 1065 for a partnership.  The Schedule C is available in TurboTax Home and Business or TurboTax Self-Employed Online. 

 

If you want to be taxed as a totally separate entity, you would need to organize as a C-Corp.  You would be double taxed on the earnings of the C-Corp as the C-Corp pays taxes and then you would pay taxes on any distributions. LLC's do not pay taxes they simply file informational returns. 

 

If you want to be taxed as a  C-corporation this would be a business organization question (not a tax question) that you would need to contact a local business solutions expert.  

Highlighted
Level 15

Single-member LLC taxed as a corporation through TurboTax?

If you wish to have your LLC "treated like an S-Corp" (or C-Corp) understand that's for "tax purposes only" and absolutely nothing else what-so-ever. However, if you want the IRS and your state to treat your business like a corporation, then your business must "act" like a corporation. That means you're required to follow all the laws, rules and requirements of a corporation at both the federal level and the state level. The state laws for corporations differ from state to state.

So you should seek professional help for this, and understand that this will not in any way, form or fashion change the fact that for the 2019 tax year your business was not incorporated.

Sole Proprietorship – This is a business with one owner, and only own owner. There are no other investors or share holders. This type of business is considered a “disregarded entity” by the IRS. All income and expenses for the business are reported  on SCH C as a physical part of the owner’s personal tax return. Again, a sole proprietorship has only own owner. Depending on what state the business is in, registration is not required at the state level. But it may be required at the county, town, or other level of government below the state. For example, your county may require you to register and obtain a county issued Occupational License, which authorizes you to conduct business only within the jurisdiction of the authority that issued the Occupational License. This is most often required when the county, city or other authority below the state taxes personal income or imposes a tangible property tax on business assets utilized to produce business income.

Single Member LLC - This is a business with one owner, and only own owner. There are no other investors or share holders. This type of business is considered a “disregarded entity” by the IRS. All income and expenses for the business are reported  on SCH C as a physical part of the owner’s personal tax return. Again, a single member LLC has only own owner. This type of business is required to be registered at the state level, weather that state taxes personal income or not.  Additionally, this type of business may also be required to obtain an Occupational License for the county(s), city(s) or other more localized jurisdictions within that state, in which the business will be operating in.

Multi-Member LLC – This is a business with more than one owner.  It’s also the exact same as a Partnership (for tax purposes) This type of business also has to register at the state level, and may also be required to obtain an Occupational License from more localized jurisdictions within the state, in which that business will operate.  This type of business will file its own physically separate tax return with the IRS (and state if applicable) referred to as a Partnership Return, on IRS Form 1065. When completing the 1065 (using TurboTax) the business will issue each individual owner a K-1 reporting the income (or loss) of each owner. Each owner will use this K-1 to complete their personal return. So an owner can’t even start their personal return, until after the 1065 Partnership Return has been complete, filed, and all K-1’s issued to all owners.

In the community property states of Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico, and Wisconsin if you have a multi-member LLC where there are only two owners, those two owners are legally married to each other, and those two owners will be filing a joint 1040 tax return, they have the option of splitting all business income and expenses down the middle and each partner reporting their share of the business income/expenses on a separate SCH C for each tax filer on the joint return. That means your joint 1040 return will have two SCH C’s included with it – one for each owner. But this can present its own problems in the event of divorce, separation. The issues can become even more compounded upon the death of one of the owners. If that deceased owner’s will does not pass all assets to the surviving partner, then that surviving partner can find themselves in a tax hell, not to mention the problems that can arise with the “new” owner or owners.

LLC “Like an S-Corp” – For tax purposes only (and I reiterate: FOR TAX PURPOSES ONLY!!!!!) one can elect to have the IRS treat their single member LLC or multi-member LLC “like an S-Corp” ****FOR TAX PURPOSES ONLY!!!!!****  This means your business is treated like and considered to be a physically separate taxable entity. This is accomplished by filing IRS Form 2553 – Election by Small Business Corporation. This allows you to act as if your single member LLC or multi-member LLC is an S-Corp. But understand that if you want the IRS to treat your LLC like an S-Corp, then the business “must” act like an S-Corp, and follow all the laws, rules and regulations required of an S-Corp by whichever state your LLC is registered in. All business income and expenses is reported on IRS Form 1120-S – Income Tax Return For An S-Corporation. The S-Corp will then issue each owner, investor and/or shareholder a K-1 which they will need before they can even start their personal tax return.  Unlike a single member LLC which is considered a disregarded entity for tax purposes, an LLC that has filed form 2553  “is” considered and treated like a separately taxable entity.

LLC “Like a C-Corp” – For tax purposes only (and I reintereate: FOR TAX PURPOSES ONLY!!!!!) one can elect to the the IRS treat their single member LLC or multi-member LLC “like a C-Corp” ****FOR TAX PURPOSES ONLY!!!!!**** This means your business is treated like and considered to be a physically separate taxable entity. This is accomplished by filing IRS Form 8832 – Entity Classification Election. This allows you to act as if your single member LLC or multi-member LLC is a Corp. But understand that if you want the IRS to treat your LLC like a C-Corp, then the business “must” act like a C-Corp and follow all the laws, reules and reguations required of a C-Corp by whichever state your LLC is registered in. All business income and expenses is reported on IRS Form 1120 – IU.S. Corporation Income Tax Return.

S-Corp – This type of business is registered at the state level and must conform to the laws, rules, regulations and ordinances of that state which apply to an S-Corp. All business income and expenses is reported on IRS Form 1120-S – Income Tax Return For An S-Corp.  The S-Corp will then issue each owner, investor and/or shareholder a K-1 which they will need before they can even start their personal tax return.  Unlike an LLC which is considered a disregarded entity for tax purposes, an S-Corp  “is” a separately taxable entity, and therefore files its own physically separate tax return and issues K-1’s to all owners, officers, investors and shareholders.

C-Corp - This type of business is registered at the state level and must conform to the laws, rules, regulations and ordinances of that state which apply to a C-Corp. All business income and expenses is reported on IRS Form 1120 – Income Tax Return For A C-Corp.   A C-Corp  “is” a separately taxable entity, and therefore files its own physically separate tax return.

Additional Information For Rental Property Owners

Occasionally a rental property owner will be “convinced” they need to put their rental property into an LLC (be it single owner or multi-owner LLC) as a means of protecting themselves and their personal assets from legal litigation should they ever be sued by a tenant. The property owner is told the LLC gives them and their personal assets a “veil of protection” from any legal litigation that may arise as the result of legal actions perpetrated by a rental tenant. Nothing could be farther from the truth.  If you check court records (even in your local area) you’ll probably find numerous cases where a tenant sued their landlord and the LLC provided practically no protection of the property owner’s assets. That “veil of protection” supposedly offered by an LLC is so thin, even a new first time lawyer has no problem piercing that veil and attacking the personal assets of the property owner on behalf of the tenant. There are other problems and issues with this too.

In order to legally transfer ownership of rental property to an LLC, the owner must have the permission of the mortgage holder. No lender in their right mind will give this permission either. Even if you think you can refinance the property or “sell” it to your LLC, unless your LLC has the cash on hand to pay for it in full, your LLC will never qualify for the mortgage loan. The lender doesn’t want to risk your LLC going under (by filing bankruptcy for example), and they lose money because of it. So I’m confident in telling you, that’s not going to happen.

When you create an LLC for your rental property, it’s generally understood that business income gets reported on SCH C as a part of your personal tax return. However, a SCH C business produces “earned” income, and a rental property produces “passive” income. What’s the difference?

Earned income is income which you have to do out and “do something” in order to earn it. This income is subject to regular income tax, and also an additional 15.3% self-employment tax. The SE tax is basically the employer side of your social security and Medicare. But rental income is not “earned” income, and therefore is not reported on SCH C. So if you create an LLC for your rental property, then absolutely nothing concerning that rental property will be reported on SCH C. Not one penny of rental income and not one penny of rental expenses.

Rental income is “passive”. That’s because all you do with rental property on a recurring basis is just “sit there” and collect the rent every month. You are not “doing anything” to “earn” it on a recurring basis. That’s why rental income is reported on SCH E. Rental income is subject to regular tax, but is NOT subject to the additional self-employment tax. This means that rental income DOES NOT COUNT for your social security account or Medicare contributions.

SO if you create an LLC for your rental property, there are two things that will NOT happen.
 - You will not be able to “legally” transfer ownership of the property from you, to the LLC unless you have a really dumb lender.
 - You will not report one penny of rental income or one penny of rental expense on SCH C.

So in the end, you will be filing a zero income/expense SCH C with your personal tax return.

Now let’s say you decide to file the 8832 to treat your LLC like an S-Corp, and then you transfer ownership of the property to your LLC. You can and will report your rental income on SCH E as a part of the 1120-S Corporate Return, and you will also report the K-1 on SCH E as a part of your personal tax return. But keep in mind that this is for ***TAX PURPOSES ONLY!!!****. So if a tenant sues you, I seriously doubt the courts will recognize your S-Corp, and I seriously doubt the court will recognize the S-Corp as a physically separate owner of the property. Remember, that 8832 Entity Classification Election is for “TAX PURPOSES ONY”. It has no weight at all for any and all other legal purposes – such as you being sued by a tenant.

SO if you want to do this (and it still makes no financial sense) then form an actual S-Corp and transfer ownership of the property to the S-Corp. More than likely the lender won’t allow the transfer. But you can sell the property to the S-Corp if the S-Corp can qualify for a mortgage loan.  Overall though, it’s still financially dumb to do this. Here’s why I say that.

When you move out of your primary residence and convert it to residential rental real estate, you have to convert your homeowner’s insurance policy to a rental dwelling policy. Or if you buy the real estate as rental property outright, then you have to obtain a rental dwelling policy at that time.  A rental dwelling policy will, at a minimum, include $300,000 of liability coverage. For most that will suffice. But if the property is in certain areas of the country you may want more liability coverage. I have three rentals myself and have a total of $1,000,000 of liability on each. It cost me less than an additional $100 a year on the insurance for each property. So for me, it’s worth it. It’s also significantly cheaper not only in money, but in time spent dealing with corporate taxes and all that other additional paperwork crap.

One mistake I see quite often is that when an owner converts their primary residence or 2nd home to rental property, and they fail to update their insurance policy. This can bite when you have a claim. If the property is insured as your primary residence, but you are using it as rental property (which is other than it’s insured use) don’t be surprised when the insurance company denies your claim, and you can’t find any lawyers that will take your case.  If it’s a case of you being sued by a tenant, then to be honest and put it bluntly, you’re screwed.

 

 

 

Highlighted
Level 15

Single-member LLC taxed as a corporation through TurboTax?


@MARSurf wrote:

What steps need to be taken to have that business income taxed as a corporation and what product (or products) from TurboTax will allow me to accomplish this?


The very first step you should take would be to seek an in-person consultation with a local tax professional where you can state your goals, concerns, and receive relevant and accurate advice and information.

 

TurboTax Business contains the forms (below) necessary to make the elections for your LLC to be taxed as a C or an S corporation and also to prepare the appropriate income tax returns for those entities. Be advised that the election forms must be timely filed.

 

Form 8832: Use to elect to be taxed as a C corporation.

 

Form 2553: Use to elect to be taxed as an S corporation.

 

Note that TurboTax Business cannot be used to prepare your individual income tax return (e.g., Form 1040) so you would need a personal version of TurboTax for that purpose in addition to TurboTax Business.

 

Again, seek professional advice prior to making a decision on changing entities for tax purposes.

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Returning Member

Single-member LLC taxed as a corporation through TurboTax?

Which version of Turbo Tax should be used that allows for Single-member LLC electing to be taxed as a corporation (Form 8832) and will put it in the proper place on the Form 1040?  I have already filed Federal  Form 1120 and paid the appropriate taxes for the Federal return.

 

My state is Kentucky, which does not recognize the Federal Form 8832 filing for personal taxation.  So, I need Turbo Tax to fill in these forms too.

 

 I have already purchased 2019 Turbo Tax Deluxe.  Does this version have what I need?  If so, where? I can not find the proper location.  If this is the wrong version, can I get credit towards the right version?

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Level 15

Single-member LLC taxed as a corporation through TurboTax?

If you have the Desktop Deluxe program you can enter everything.  All the Desktop programs have the same forms. You just get more help and guidance in the higher versions. 

 

If you have the online browser version you need Premier to enter the K-1 from the S corp.

 

To enter a K-1 go to

Federal Taxes Tab or Personal (Home & Business version)

Wages and Income

Then scroll way down to Business items

Schedules K-1, Q - Click the Start or Update button

 

Be sure to pick the right kind of K-1. There are 3 kinds, 1041, 1065 & 1120S

Enter each k-1 separately.

 

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Level 6

Single-member LLC taxed as a corporation through TurboTax?


@TerryLouKy wrote:

 I have already filed Federal  Form 1120


Did you receive money from the corporation?  If so, you should have received a W-2 and/or a 1099-DIV from the corporation.  You just enter those forms into TurboTax.

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Returning Member

Single-member LLC taxed as a corporation through TurboTax?

The LLC pays its corporation taxes (21%) on my rental income.  The remaining profits are distributed to the owner, as if the LLC is dissolved at the end of each year.  These are not dividends.

 

Form8832 ...

• If an eligible entity classified as a partnership elects to be classified as an association, it is deemed that the partnership contributes all of its assets and liabilities to the association in exchange for stock in the association, and immediately thereafter, the partnership liquidates by distributing the stock of the association to its partners.
• If an eligible entity classified as an association elects to be classified as a partnership, it is deemed that the association distributes all of its assets and liabilities to its shareholders in liquidation of the association, and immediately thereafter, the shareholders contribute all of the distributed assets and liabilities to a newly formed partnership.
• If an eligible entity classified as an association elects to be disregarded as an entity separate from its owner, it is deemed that the association distributes all of its assets and liabilities to its single owner in liquidation of the association.

 

The State (Kentucky) still considers it an LLC and taxes at their rate.

 

My question is which version of TurboTax allows for this?  I am using TurboTax Deluxe and it does not allow for  this.  It can not separate out the Federal Return taxes away from my Federal 1040.

Highlighted
Level 15

Single-member LLC taxed as a corporation through TurboTax?

Just want to provide a bit of clarity here.

Which version of Turbo Tax should be used that allows for Single-member LLC electing to be taxed as a corporation

When it comes to taxes *AND* *ONLY* *TAXES* you have an S-Corp. Period. End of discussion. When talking taxes *AND* *ONLY* *TAXES* referring to it as "LLC taxed as an S-Corp" is a waste of time finding those characters on the keyboard and typing them out.

TurboTax Business (different from Home & Business) is for completing and filing a tax return for a non-living, non-breathing, and separately taxable entities. This includes S-Corp, C-Corp, Partnerships, Multi-member LLCs, Estates and Trusts.

TurboTax Business can not be used to complete and file a personal 1040 tax return of any type, as TurboTax Business does not include that form in the program.

TurboTax Business is not available as an online product or for MACs. It's for the Windows operating system only. You can purchase it at any local authorized retailer or online directly from Intuit at https://turbotax.intuit.com/small-business-taxes/

 

Highlighted
Level 15

Single-member LLC taxed as a corporation through TurboTax?


@TerryLouKy wrote:

The remaining profits are distributed to the owner, as if the LLC is dissolved at the end of each year.  These are not dividends.


The LLC, with an election to be treated as a corporation for federal income tax purposes, is not treated as being dissolved at the end of each year. The language you posted from Form 8332 (in bold) is applicable only to the time when the election is made and not in subsequent tax years.

 

Net profits distributed from C corporations to shareholders are most definitely dividends for federal income tax purposes.

Highlighted
Level 15

Single-member LLC taxed as a corporation through TurboTax?


@Carl wrote:

When it comes to taxes *AND* *ONLY* *TAXES* you have an S-Corp. Period. End of discussion. 


It is not the end of the discussion since @TerryLouKy clearly indicated Forms 8332 and 1120 were filed and corporate taxes were paid at the 21% rate. That being the case, @TerryLouKy has a C corporation, not an S corporation.

Highlighted
Returning Member

Single-member LLC taxed as a corporation through TurboTax?

The only point of  Federal Form 8332 is to allow the LLC to be taxed as at the Federal corporate tax level of 21% versus being taxed as a pass through to the personal tax rate. If your situation is that it is advantageous to be taxed at 21%, you file Form 8332.  If not advantageous, you do not file for the Form 8332 election.  The decision is driven by you personal tax rate.

 

My point is that TurboTax does not seem to allow for a State (Kentucky) to want to continue to tax the LLC as a pass through to personal tax filing.

 

As to a responder's comment earlier, the instructions for Form 8332 say nothing about the initial election business liquidation and distribution of proceeds after taxes being limited to the first year of election.  The concept is that if there is a profit, that profit is taxed at the corporate rate of 21%, then the balance of profit is available to be distributed as a post-Federal-tax distribution to the stockholder, as if the business was liquidated.  The next tax year, the process starts over again in each subsequent year.  This is similar to a Sub-S corporation, except the Federal taxes are paid directly by the LLC (corporation).   If this were not true, there is no point to Form 8332.

 

What needs to happen is that the LLC, with a Form 8332 Election, pays the Federal taxes on Form 1120 and then the LLC's profit is taxed on the State level on the personal income tax return.  The Federal 1040 does not show the income on the personal return.

 

TurboTax either has a version that allows this or needs to be updated to allow this.

 

 

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Level 15

Single-member LLC taxed as a corporation through TurboTax?

I believe the issue centers around the fact that Kentucky imposes some sort of additional tax on limited liability entities (which most states do not).

 

As a result, although the forms are available in the program, there is nothing entered on the federal side in the case of a C corporation (which files its own separate return) that could flow through to the state forms. Therefore, I suspect the requisite state form(s) would have to be prepared in Forms Mode (which is only available in desktop (installed) versions of TurboTax.



Highlighted
Level 6

Single-member LLC taxed as a corporation through TurboTax?

I don't know about your problem with Kentucky, but your comments indicate you do not know how C-corporations work.  You REALLY need to sit down with a tax professional about it.

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Level 15

Single-member LLC taxed as a corporation through TurboTax?


@AmeliesUncle wrote:

I don't know about your problem with Kentucky, but your comments indicate you do not know how C-corporations work.  You REALLY need to sit down with a tax professional about it.


I would certainly like to concur with, and provide emphasis for, the above-quoted statements. 

 

@TerryLouKy You need to consult with a tax professional, without question.