I am doing a tax return and am a bit confused. I have a single member LLC that is owned by a Multi-member LLC. So the Single Member LLC is a pass through entity, how do I report or do the tax return for the Multi-Member LLC then? The only income/expenses the Multi-member LLC will have is from the pass through income/expenses from the Single member LLC.
Your question is confusing ... how can a Partnership "OWN" a sole proprietorship ?
And the ONLY income for the Partnership comes from the Sole Prop ?
And how can the expenses get passed thru from the Sch C to the Partnership ? Either the expenses are paid by the Sole Prop or the partnership ... how can expenses be passed thru to the other entity ?
This is an odd set up ... but if the sole prop paid the partnership for "services/goods" then all the income the Sch C takes in goes on the Sch C and an expense for the amount they paid to the partnership is taken ... use the casual labor category for the expense and issue them a 1099-misc.
Expenses paid by each entity is deducted on their respective returns depending on who actually paid them.
Then the partnership return must be completed first (especially if you are personally a partner) and each partner will receive a K-1 to enter on their personal tax returns.
Seek local professional assistance if you are still have questions especially if this is the first partnership return you will be filing ... that form 1065 was due back on 3/15 so unless you are on extension the penalties are piling up monthly.
Company A is a single member llc (disregarded entity) that the single member is Company B. Company B happens to be a Partnership. So all the income/expenses pass through from Company A into Company B's tax return, which yes is a 1065. I have done partnership returns before but just haven't encountered this issue. Thank you for your assistance.
Ok ... how can expenses from a sole prop "pass thru" to the partnership ???
Which entity actually pays the expenses ? Does the Sole Prop reimburse the Partnership for expenses the Partnership pay ???
Sorry I misspoke as they don't pass through the expenses, its the bottom line that is put through to the multi-member LLC. When I said income/expenses I was meaning "Net Income" not each one individually. I believe I got it figured out with comparing last years return that their old CPA did their Quickbooks to see where they get their numbers. Thank you.
Ok ... so you have a sole prop that takes in income, pays expenses and deducts the "casual labor" (partnership) costs that are reported on a 1099-misc that the sole prop issues to the partnership. The bottom line profits on the Sch C cannot be passed thru ... they are paid out on a 1099 and expensed that can bring the Sch C bottom line to a zero.
The 1099 income is in turn reported on the 1065 and any expenses the 1065 pays is deducted at that level and a K-1 form for each partner is issued to every partner and included on their personal returns.
The K-1 is NOT entered on the Sch C ... these are totally separate entities ... do not try to "close the loop" which is probably what is confusing you. Don't make this any more complex than the sole prop paying the partnership.
The Single Member LLC is "disregarded" (assuming it did not make an election to be taxed as a corporation). In other words, you ignore that it exists and treat the income and expenses as if the owner incurred them.
So that means you treat it as if the Multi-Member LLC incurred the income and expenses. Unless your State has other requirements for LLCs (for example, California or Texas), nothing needs to be done with the Single Member LLC other than putting the income and expenses on the Partnership return.
@AmeliesUncle is exactly correct. The SMLLC owned by the multi-member LLC is treated as a "division" and all expenses, revenues are reported on the form 1065 prepared by the multi-member LLC.