Small Business Tax Questions

[sage311]

I own a new very small bee hive farm with a partner. We only have 1 hive so far and don't plan on showing a profit for at least 3 years (until we can buy at least 3 more hives) - Do we both need to have separate EIN numbers for the business expenses for these first few years or can we use 1 EIN (we've separated all the expenses & receipts up to this point? 

Also - do we need to worry about an LLC until we actually have significant profits? 

[Critter-3]

Once you form a partnership you must get an EIN and file either a partnership return or a corporate return if you choose to be taxed as such.    I highly recommend you seek local professional guidance to choose the correct business entity for your goals and needs.    

https://www.irs.gov/businesses/small-businesses-self-employed/starting-a-business

[sage311]

Seems like a lot of paperwork to form a partnership that will only have about 3K in liabilities (spilt between the 2 of us) with 0 profits for this 1st year. 

[Critter-3]

Well that is the correct way to handle a partnership tax wise even if it seems like a lot of work. 

[Opus 17 · Accepted solution]

It doesn’t matter how much paperwork it is, that’s the rule.

If you have a partnership with anyone who is not your spouse, partnership must file a form 1065 tax return. The partnership usually does not pay direct tax, but the 1065 will include preparation of a K-1 statement for each partner, which will report each partner’s share of the income and expenses of the partnership on the partners’ individual tax returns.  The partnership should have its own EIN, which either one of the partners can obtain online from the IRS in about 15 minutes. One of the partners must be the “responsible person“ for the EIN, but the EIN would belong to the partnership as a separate business entity.

If the partnership later goes on to file an LLC, that will not change its federal tax treatment. LLC‘s are state entities, and the IRS will still consider you a partnership and you will still file a form 1065 for the partnership.  Whether your partnership would benefit from an LLC would be a matter for state law and for an attorney to help you with. It is not necessary to create an LLC in order to have a partnership under federal tax law.

Also note that the partnership tax return form 1065 is due March 15, not April 15, and the late fees are substantial.  You can request an extension for the 1065, but the request must be filed before March 15.