If I create a Partnership LLC with my spouse can we file our non business personal returns jointly?

[gianelk]

I am considering creating a Partnership, LLC with my wife in order to obtain an EIN for use in order to utilize ordinary income and expense rules for late in the 2022 established day trading.  We understand it is too late in the year to file an MTM Section 475 election.  When we file our personal returns are we still able to file married jointly?

[Anonymous_ · Accepted solution]

In which state do you and your wife reside?

If you organize an LLC with you and your wife as members (partners), you will have to file a Form 1065 for the LLC unless you reside in a community property state and hold your interests as community property. If you file a 1065 for the LLC, you will each receive a K-1 which you can enter on a joint personal return.

See https://www.irs.gov/instructions/i1065#en_US_2021_publink11392vd0e555

If you reside in a community property state, you and your wife can make an election to treat the LLC as disregarded and you can then each file a Schedule C (on a joint return).

See https://www.irs.gov/pub/irs-drop/rp-02-69.pdf

[Mike9241]

also will your spouse be active in the day trading? there could be issues of allocating her any profit or losses if she merely is a member that does nothing. 

as to the sec 475 MTM election see a tax pro to go over your situation. it works for some but not everyone.

[gianelk]

Hi Mike9241,

My wife will not be active in the day trading.

[Anonymous_]

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@gianelk wrote:

My wife will not be active in the day trading.

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In that event, why not simply organize an LLC with you as the only member or simply file as a sole proprietor (without organizing an LLC), assuming you have trader status?

[gianelk]

Hi @Anonymous_,

Sorry I should have mentioned which state. We live in Oregon which is equitable distribution rather than community property so the 1065 sees appropriate from your response. Thanks!

[Anonymous_]

@gianelk 

You are correct, but a rationale for organizing a multi-member LLC (with you and your wife as members) escapes me at the moment, based upon the facts you presented.

[gianelk]

@Anonymous_ Yes you nailed it.  I did this because I was led to believe that I could not elect a late 475 election with a Sole Proprietorship.  I began trading in mid November after a job loss.  However, having created the entity I am still in a bit of a quandary.  I am having trouble getting the business application through my broker.  It's submitted yet everything is still in an investment account for transactions prior to November.  Am I stuck with these trades all being investments or is there a way to split things out that you know of? 

[Mike9241]

@gianelk 

A trader must make the mark-to-market election by the original due date (not including extensions) of the tax return for the year prior to the year for which the election becomes effective. You can make the election by attaching a statement either to your income tax return if filed without an extension or to a request for an extension of time to file your return. The statement should include the following information:

That you're making an election under section 475(f);
The first tax year for which the election is effective (that is, the tax year for which a timely election is being made); and
The trade or business for which you're making the election.
Refer to the Instructions for Schedule D (Form 1040 or 1040-SR), Capital Gains and Losses PDF for more information on how to make the mark-to-market election. It's important to note that in general, late section 475(f) elections aren't allowed

in my opinion, making a 475(f) election for a partnership where your partner(spouse) is not active (not a trader) would likely make the election invalid.   

[gianelk]

@Mike9241 

This is all still gelling at my end but there are CPA organizations which I'm using for my research.  Not recalling all of the limitations of what I post here I won't name a name.  My understanding is basically that the Partnership LLC gives me ring fencing options for trades and provides a SALT cap work around option as well as a separate return to separate things appropriately utilizing a business brokerage account.  I'm still trying to understand the percentage of business involvement I need to declare to make it all valid.  I'm likely going to have to pay for some of their CPA time as I am not able to find anyone locally yet to help me.