Start date for filing 1065, switched from single LLC to partnership.

[abholcomb]

Hi, I asked this question in the TurboTax home and business forum, but realized it should be here. 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.

[MaryK4]

Yes, you will report the first part of the year on your Schedule C, then everything after the starting date of the partnership goes on the 1065.  The gifting of the partnership interest is not a loss on your Schedule C (you can't give something away then claim it as a loss on your taxes.)  You may want to check if you will need to file gift tax return.

Gift of capital interest.  If a family member (or any other person) receives a gift of a capital interest in a partnership in which capital is a material income-producing factor, the donee's distributive share of partnership income is subject to both of the following restrictions.

• It must be figured by reducing the partnership income by reasonable compensation for services the donor renders to the partnership.

• The donee's distributive share of partnership income attributable to donated capital must not be proportionately greater than the donor's distributive share attributable to the donor's capital.

[Rick19744]

Why did you file a form 8832?

A two owner business defaults to a partnership unless you chose another entity structure on the form.

How did you complete the form 8832?

Did you file for a EIN for the partnership?

[abholcomb]

Thank you MaryK1101.

It makes much more sense to file both, since our income per quarter varies. We are General Contractors, so capital is not a material income-producing factor.

[abholcomb]

Hi Rick,  I already had an EIN for my SMLLC. I know it defaulted to a disregarded entity, so I reported the income on my 1040 Schedule C. I thought changing to partnership required notifying IRS of new tax designation since we kept the same EIN, so we filed the 8832.