Can I switch from carrying inventory to non-invent...
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Level 1

Can I switch from carrying inventory to non-inventory?

Handing over a business which has operated at a multi-member llc to one of the members, who will operate as a single member llc.

We've filed as having inventory for the past 10 years, and have maintained inventory in QuickBooks, but he would prefer to not deal with actual inventory.

Is there a way to change this on our 2020 business return (1065)?

3 Replies
Level 3

Can I switch from carrying inventory to non-inventory?

Your situation is complicated.  a partnership return still has to be filed for the period it was a multimember LLC.  from then on as a single member LLC he reports on his own schedule C.  you want to change your accounting method for inventory. this requires the filing of form 3115.  you didn't say whether or not your selling your interest or giving it away. either way presents certain tax issues for you and him including whether the partnership and him have to file asset acquisition statements TT does not do them.   I strongly recommend the use of a pro 

Level 1

Can I switch from carrying inventory to non-inventory?

Hey Mike9241, thanks for taking the time to assist.

We (the partnership) ceased operations in the summer of 2019, but by year end I did not have my ducks in a row so that I could do a final tax return.

Then in May of 2020 the one partner decided to give it another go, so at that point it was technically changed to a single member llc (in principle).

My dilemma now may very well require a pro, but I thought maybe there was a simple way to just switch from filing with inventory to filing and choosing no inventory.

 

Employee Tax Expert

Can I switch from carrying inventory to non-inventory?

If you  longer have any inventory then that would be reflected in your Ending Inventory in Cost of Goods Sold.  This should resolve itself in your final income statement and carry to your final net profit or loss. 

 

You would then start your new organization without any inventory.

 

If the partnership no longer is active then you should close the partnership and the new owner would go forward as a  sole proprietorship or LLC.

 

Note: be sure to file your final Partnership on time as the penalty for not filling a partnership return is expensive. The penalty is $205 for each month or part of a month (for a maximum of 12 months) the failure continues, multiplied by the total number of persons who were partners in the partnership during any part of the partnership's tax year for which the return is due.

 

The due date for partnership and multiple-member LLC tax returns, Form 1065, is the 15th day of the third month after the end of the partnership's fiscal year. The due date is March 15 for a December 31 year-end.

 

Partners are not employees and shouldn't be issued a Form W-2. The partnership must furnish copies of Schedule K-1 (Form 1065) to the partner. For deadlines, see About Form 1065, U.S. Return of Partnership Income.

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