Single Member LLC wholly owned by S-corp - tax reporting questions

ZAP70 — Mon, 17 Feb 2025 20:15:23 GMT

First time poster, so apologies in advance if I've done something incorrectly.

I have a California S-corp (incorporated as a full corp, *not* an LLC taxed as an S-corp) which we'll call the "Parent-S-corp". I've been completing the 1120S and the K1's sent to myself via turbotax for years. No problem so far.

Last year I opened a new California based LLC whose only member was the S-corp. In other words, it's a single member LLC wholly owned by Parent S-corp. We'll call this Subsidiary-LLC.

Subsidiary-LLC was formed solely as a placeholder for a future project that might have higher liability than the usual service lines of Parent-S-Corp - in other words this was formed purely as an extra shield against hypothetical litigation. Subsidiary-LLC had zero revenues in TY 2024.

My understanding is that since Subsidiary-LLC is a pass through disregarded entity, any profits/losses it generates would kick up to Parent-S-Corp. I plan to keep separate books for this but ultimately everything would be aggregated together on the master Parent-S-Corp 1120S. Hopefully I'm right so far.

Here are my questions:

1) Is Subsidiary-LLC a "QSub" as defined by Federal/CA tax codes? I've been getting mixed messages on this and it seems QSubs are usually C- or S-corps owned by parent S-corps. In my case the LLC is already a disregarded entity so it's not clear I actually need to file a QSub designation.

2) Regardless of whether Subsidiary-LLC is a QSub or stays as a regular LLC, are there any forms (tax or otherwise) I need to submit to the federal/state govs with respect to this Subisidary-LLC? Or is the only tax return the 1120S (fed) + 100s (california) for Parent-S-Corp? If no tax forms are required solely for Subsidiary-LLC, do I report any taxes paid to CA on behalf of the Subsidiary-LLC (see question 4 below) on the Parent-S-Corp 1120S? I'm thinking of the LLC's minimum franchise tax here.

3) Even though I plan to keep separate books, I understand the income/losses from Subsidiary-LLC will be reported on Parent-S-Corp 1120s. Where would I report these? For example, say the LLC had 100k of receipts and 40k of expenses for 60K of profit, which of the following would I need to report?

- Scenario A: 100K of income on Parent-S-Corp 1120-s under "other income" and 40K of expenses under the appropriate deduction category; ie, this is operating income and will be subject to 1.5% s-corp tax on operating profits

- Scenario B: the net 60K income on 1120-s under "other income" without segregating the income vs deductions; functionally this will still have the tax implications as Scenario A and will be subject to 1.5% s-corp tax on operating profits

- Scenario C: the net 60K income on 1120-s-under 112"schedule K income"; ie this is portfolio income and will not be subject to 1.5% s-corp tax

4) I know I have to pay at least CA minimum franchise tax on Subsidiary-LLC regardless of whether it's a regular LLC or a QSub. But I'm struggling to figure out how to calculate this correctly based on whether the Subsidiary-LLC's taxes "cover" a part of the parent company's net income. For example, let's say Parent-S-Corp has 100K of profit unrelated to Subsidiary-LLC, and Subsidiary LLC had 200K gross receipts and 100K expenses (100K profit). Which of the following tax situations would be true?

- Scenario A: $3800 total would be due, resulting from a 1.5% S-corp tax on the combination of all profit attributable to the S-corp (100K unrelated to Subsidiary-LLC + 100K related to Subsidiary-LLC) + $800 minimum franchise tax for LLC

- Scenario B: $2300 total would be due, resulting from a 1.5% S-corp tax on the 100K s-corp profit unrelated to Subsidiary LLC + a $800 minimum franchise tax on the LLC which covers up to 249,999 of gross income

And what if the LLC made, let's say 1M in rev and 100K in expenses. Does the 900K profit get kicked up to the S-corp for 1.5% taxation with the minimum franchise tax still being added from the LLC (scenario 4A above)? or does the LLC pay the $6000 franchise tax for receipts at/above 1M and the S-corp does NOT pay 1.5% taxes on the 900K? Basically I'm not sure if the subsidiary LLC is always going to pay ONLY the $800 minimum franchise tax or if it pays higher rates if it made enough revenue and shields the S-corp from paying the 1.5% tax on those amounts.

Thank you in advance, I know this was a very long question.

Re: Single Member LLC wholly owned by S-corp - tax reporting questions

ZAP70 — Fri, 21 Feb 2025 20:27:17 GMT

I know this is a tremendously long question but wanted to bump this up in hopes someone else might see it.

topic Single Member LLC wholly owned by S-corp - tax reporting questions in Business & farm

Single Member LLC wholly owned by S-corp - tax reporting questions

Re: Single Member LLC wholly owned by S-corp - tax reporting questions