Sole Prop LLC and Taxes

[awilson316]

My husband and I recently started a Sole Prop LLC.  I obtained an EIN number because I thought I had to.  I am not interested in filing separate taxes because we will not have any employees except ourselves.

Do I have to file a separate tax return under the EIN or can I work daily through this EIN and utilize the Schedule C on our individual tax returns?

Sorry for being dense - I'm new to business ownership.

[RobertG]

You may have to file a partnership return for your LLC.

If you live in a community property state, you can report your business on a schedule C as a qualified joint venture.

An unincorporated business jointly owned by a married couple is generally classified as a partnership for Federal tax purposes. 

For tax years beginning after December 31, 2006, the Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28) provides that a "qualified joint venture," whose only members are a married couple filing a joint return, can elect not to be treated as a partnership for Federal tax purposes.

A Business Owned and Operated by the Spouses through a Limited Liability Company Does Not Qualify for the Election.

Only businesses that are owned and operated by spouses as co-owners (and not in the name of a state law entity such as an LLC) qualify for the election. See Rev. Proc. 2002-69, 2002-2 C.B. 831, for special rules applicable to married couple state law entities in community property states.

If the business entity is wholly owned by a husband and wife as community property under the laws of a state, and the husband and wife as community property owners, treat the entity as a disregarded entity for federal tax purposes, the Internal Revenue Service will accept the position that the entity is a disregarded entity for federal tax purposes.

How to Report Federal Income Tax as a Qualified Joint Venture (Including Self-Employment Tax)

Spouses electing qualified joint venture status are treated as sole proprietors for Federal tax purposes. The spouses must share the businesses’ items of income, gain, loss, deduction, and credit. Therefore, the spouses must take into account the items in accordance with each spouse's interest in the business. The same allocation will apply for calculating self-employment tax if applicable, and may affect each spouse’s social security benefits. Each spouse must file a separate Schedule C (or Schedule F) to report profits and losses and, if otherwise required, a separate Schedule SE to report self-employment tax for each spouse. 

Please see: Election for Married Couples Unincorporated Businesses

And: Rev. Proc. 2002-69

@Anonymous_

[Edited 04/23/2020|3:05 PST]

[Anonymous_ · Accepted solution]

You really do need to consult with tax and legal professionals regarding your specific situation (each one is unique in some shape or form).

Beyond that, an LLC is not a sole proprietorship, particularly when the LLC has more than one member.

If you and your husband reside in a community property state (Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico, and Wisconsin), then you can each file a Schedule C for your respective interests in the LLC.

See https://www.irs.gov/pub/irs-drop/rp-02-69.pdf

Otherwise, you will probably be required to file a Form 1065 for the LLC. In that event, you should definitely seek professional income tax preparation.