How to report 1099-INT interest income received by an LLC taxed as a disregarded entity?

[ThomasM125]

The purpose of schedule C is to report self-employment income. Unless you are in the business of loaning money, the interest income would be unrelated to your self-employment activities and as such it would be acceptable to report it on schedule B. 

This would avoid the problem you have with the IRS not being able to identify it as being reported on your tax return, and would also shelter it from self-employment tax.

[funnyknife]

I completely understand what you are saying but as a hard money lender it is my primary business and is quite substantial income.

[JamesG1]

Are you able to have the 1099-Int reported in the name TIN of the business and not your Social Security number?

[bcat19]

I have an LLC which earned promo interest when I opened a new bank account.  This generated a 1099-INT. Since this is a rental and a flow-thru entity, it gets reported on Sched E on my personal tax return under my SSN.  So how do I clear the 1099-Int that came from the LLC TIN?

[DaveF1006]

if this was issued to the LLC, you will need to report this in your business return. The income generated from the 1065 will then pass-through to a K1, which you will use to report the interest on your tax return. Don't try to circumvent the process to directly report this in your own tax return. Use the K1 to report it.

[bcat19]

Since this is a single owner LLC, it has always been reported on my Sched E of my tax return, now using the Safe-Harbor for rental property.  It hasn't been filed on a 1065 nor K-1.  I'm really regretting the $80 interest bonus! 

[DaveF1006]

Since you report this LLC in a Schedule E, report your 1099 INT in your personal account even though it has an EIN of a disregarded entity. Normally LLC are reported as Schedule C and you would report this as Schedule C Business Income. 

1. Go to federal>wages and income
2. Interest and Dividends>interest on 1099 INT

If the IRS ever asks you why this wasn't reported under your EIN, just explain that you do not normally file a Schedule C but a Schedule E , thus you had no place to report this interest income in your Schedule E.

[bcat19]

Dave, 

Thanks for the info.  I will likely do my own taxes this year since my preparer landed in the hospital and everything is so messed up with the Covid virus.  I usually draft my return and have him verify and enter, so was perplexed with this new twist.

THANKS so much for your guidance!!!!!

[pnored]

I have the same issue. However, I've already filed my taxes. I have a Single member LLC  residential rental business. I file on Schedule E.  I have a savings account where I keep rent deposits.  The account is under the LLC's EIN and thus the 1099 was issued under the EIN, not my SSN. I felt it was better to file on Schedule C  under other income and with the EIN so that it would match up. ANd yes, I see where a couple folks were questioned about this by the IRS.  Hopefully I made the right decision. I mean it was only $13.... But for some reason I keep thinking about it.  Would like to know for next year which is best!

[Taxathrone]

@pnored -- I'm in this situation now, with 1099-INT interest issued to my LLC's EIN--did reporting it on Schedule C work out for you, or did the IRS follow-up, saying that it was under-reported?

[pnored]

@Taxathrone 

I have not heard anything from them and I even had to file a paper return which some say gets more scrutiny. However, I am leaning more towards reporting with my Schedule E this year.  I also think maybe mine did not get questioned like others because of the small amount ($13).  But I am not certain. Overall, I think the fact that one tries to report is important here. And when it can be explained what the thought process was... that is important too . I hope this helps. 

[Taxathrone]

@pnored -- yeah, ultimately, it seems that reporting it either way seems to satisfy the IRS, even if one has to explain where it was reported on the return. I did find a couple sources, fact-checked by CPAs, which indicate that reporting it on Schedule C, line 6 is what they would do (see here and here), so I think that's where I'm going to report my single member disregarded entity LLC's bank interest (and not on my Schedule B). 

[pnored]

Oh interesting... Thanks for sharing. With that..... I think will just repeat what I did last year and keep it on Sch C. The rationale I gave in my original post to the thread made sense to me..... I am actually doing come pre-work for my taxes as I type this!

[tagteam]

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@Taxathrone wrote:

...I did find a couple sources, fact-checked by CPAs, which indicate that reporting it on Schedule C, line 6 is what they would do (see here and here)....

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Those sources are wrong. Interest paid from regular bank accounts (such as savings or bank accounts) are not business income and should not be reported on Schedule C.

The type of interest income that should be reported on Line 6 of Schedule C is interest paid on notes and accounts receivable, not interest paid on balances from bank accounts.

See https://www.irs.gov/instructions/i1040sc#idm140094051206144

If you have ever done an income tax return for a partnership/multi-member LLC or S corporation, you would have noted that interest paid by banks is reported on the K-1s and is, in turn, reported by the partners/members/shareholders on their 1040s; it does not enter into the self-employment tax matrix. In fact, the interest winds up on Schedule B if the total interest exceeds the threshold. 

[Taxathrone]

@tagteam -- those sources are wrong? Well, dang...! Are you saying this as a CPA, too?