Husband/Wife LLC in Texas previously on 1065 - Want to File on Personal Return this Year

[KMJK]

Hello,

We live in Texas. Since the beginning of the formation of our Husband / Wife LLC - 50/50, our CPA has been filing a 1065.

1. What are the advantages of filing a 1065 in Texas since Texas is already a community property state? Some folks have told me "just for the fee of doing an extra return", but there must be other reasons.

2. Is there anything that I would need to do on a 1065 this year if I want to report on our personal return instead?

Thanks.

[PatriciaV · Accepted solution]

For your situation and filing history, the advantage of continuing to file Form 1065 is that the IRS considers your LLC to be a partnership. This assumption was made the first year you filed as a partnership on Form 1065.

You are correct that the activity of an LLC owned solely by a husband & wife in a community property state may be reported on a personal Form 1040 return. The activity is allocated between the spouses on two Schedules C as part of the jointly-filed return. 

If you choose to report on Schedules C, you would not file Form 1065 for that tax year. You may receive a notice from the IRS asking for a Form 1065 for this tax year. If so, contact the toll-free number that is shown on the notice and advise the agent that you reported the income on your jointly-filed individual income tax return. This response can also be done in writing. Be prepared to reference Rev. Proc. 2002-69, 2002-2 C.B. 831.

Additional information:

• Election for Married Couples Unincorporated Businesses
• Rev. Proc. 2002-69, 2002-2 C.B. 831, which clarifies LLC reporting in community property states

[KMJK]

Thank you for the info and detail provided.