Tax Year Prior to 2020: Transfer of Sole proprietor assets to LLC

[phopkinsiii]

My wife and I are the members of a domestic LLC. 

In 2018-2019, we also operated a sole proprietorship selling jam and jellies that we produced in our home kitchen. Inventory was minimal at the end of 2019. We discontinued the sole proprietorship business on 12/31/2019, and will transfer the remaining inventory to the LLC for sale starting 2020.

We did not take depreciation on any of the inventory assets.

What's the best way to record/report this sale?

[RobertG]

It sounds like you do not have a sale at all.  You are just transferring inventory from your sole proprietorship to your LLC, which does not need to be reported. 

If you and your wife are the only members of the LLC, you can continue to file as sole proprietors, unless you are filing Partnership or Corporate returns for the LLC.

If you already deducted the cost of unused inventory on your Schedule C, the LLC can't deduct that cost again.

Inventory is never depreciated, the cost of inventory is only deducted when the inventory is sold.    

[ehar1]

Similar question here. My wife and I had a sole proprietorship in 2018 that we transitioned to an LLC in 2019. We also expanded the services we provide and changed the name. Should I mark the sole proprietorship as discontinued in 2019 and report the LLC with its new EIN separately?

[BarbaraW22]

Yes, you would need to report the LLC with its new EIN separately. A two member LLC is generally reported on a Form 1065, Partnership Return. 

@ehar1

[ehar1]

Oh, interesting. TurboTax Home and Business said suggested Schedule C on the 1040 since we are spouses and the only members...

@BarbaraW22 

[Dusty_Shutt]

Somewhat similar situation... my husband and I are discontinuing our DSS, LLC and transferring all of the assets to our already existing HAS, LLC. Both LLCs are the exact same business with different names, but we've been using the same equipment. We have a studio where the equipment is set-up. Do I need to transfer assets? Or just report the first LLC as dissolved?

[VictorW9]

The inventory will be the initial contribution by the partners of the LLC. In this case, you and your wife will be credited with the value of the inventory (lower of cost or net realizable value). This will be the amounts that will create the capital accounts for both you and your wife. 

[idc_shopping]

Hi,

Thanks for the information so far on this topic. But my situation is a bit different. So I wanted to consult the valuable members of this forum:

Question: How will I transfer my inventory from Turkish Sole Proprietorship to US LLC which I am %50 member of? I am asking the question by means of accountancy records on QuickBooks Online:

- I sell on Amazon since 2016. My seller account operated on my Turkish Personal Sole Proprietorship until the end of 2020. Now I converted the legal entity on Amazon to US LLC.

- I have over 10k USD inventory on Amazon FBA centers.

Kind regards,

[DianeW777]

The transfer of inventory from the Turkish Sole Proprietorship to the US LLC will become a part of your capital contribution(s) to the LLC and an addition to inventory for the LLC. Likewise, it will be the same situation that applies to your Amazon inventory.

• Books and records will have an increase to your capital contributions account and an increase to inventory.

[idc_shopping]

Thanks you for the answer which is very valuable for me. I totally get the idea.

In practice, I still have questions how to arrange this on Quickbooks. 

Let's say : My company purchases products which cost $10.000 in total. I add this transaction to Quickbooks as a bill and add $10.000 to my Inventory Asset Account.

When it comes to my case which is Inventory transfer, I have no bill. Can you give me an idea how to to this on Quickbooks?

Thank you and regards

[Mike9241]

a sole proprietorship operating a business that is not real estate rental files schedule C.  a single member LLC is a disregarded entity from the IRS viewpoint. conducting the same business means it to would file Schedule C. 

from a QB viewpoint just ignore the fact it's an LLC and continue the bookkeeping as if it's a sole proprietorship.  then there are no transfers of inventory that need to be recorded.

for tax purposes inventory can not be depreciated. however, it can elect various methods for valuation such as cost, lower of cost or market or another method that clearly reflects income.  

[idc_shopping]

Thank you for the prompt answer.

to be more specific, this an LLC Partnership (I am 50% member) and the inventory I am transferring is not from an American Sole proprietorship. From a Turkish Sole Proprietorship which is under my name

Best wished,

MCE