@CA_Tax_Payer wrote:
I was told that a married couple LLC was treated by IRS as a "disregarded entity".
You were told wrong. If a married couple is in business together and the business is not registered as an LLC, it can be treated as a qualified joint venture, meaning each spouse reports half the income and expenses on a schedule C as a disregarded entity. However, as an LLC, you must file a form 1065 partnership return unless you live in a community property state, in which case you also file 2 schedule Cs but this is not technically a "qualified joint venture", this is a special rule under Revenue Procedure 2002-69.
I think you need to see a tax professional. There are several things here I don't know the answer to.
1. Is the farm community property? (Given that it is out of CA, was inherited, then you formed an LLC, this may be quite complicated.)
2. Farm income goes on schedule F, not schedule C. If it's community property, you may need two schedule Fs. Otherwise, you likely still need to file a partnership return 1065 which can report passive as well as at-risk income.
https://www.irs.gov/businesses/small-businesses-self-employed/election-for-married-couples-unincorpo...
https://www.irs.gov/businesses/small-businesses-self-employed/married-couples-in-business
