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Posted by Allan Martin on June 8, 2007, 1:21 pm
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Husband and wife bought an exisiting retail/wholesale
business with the proceeds from an home equity loan (Loan
amount $300,000) and formed a LLC in the state of NJ. How
can these taxpayers:
At very least deduct the full amount of interest expense on
the loan given that the loan is in excess of the 100,000
limit. and proceeds were not for investment property but a
trade or business. Thus reducing Federal income taxes.
or
Report the LLC on Schedule C (husband and wife only LLC
menbers) and as a disreguarded entity take the full amount
of any interest paid on this loan and thus reduce Federal
income taxes, SE taxes and NJ Gross Income taxes.
In truth only the husband will be involved in this business.
What possible reasons could the attorney have had by not
forming a single member LLC?
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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
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<< to this newsgroup as well as our anti-spamming policy >>
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Posted by Benjamin Yazersky CPA on June 12, 2007, 1:06 am
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> Husband and wife bought an exisiting retail/wholesale
> business with the proceeds from an home equity loan (Loan
> amount $300,000) and formed a LLC in the state of NJ. How
> can these taxpayers:
>
> At very least deduct the full amount of interest expense on
> the loan given that the loan is in excess of the 100,000
> limit. and proceeds were not for investment property but a
> trade or business. Thus reducing Federal income taxes.
look at the interest tracing rules for guidance on deducting
the interest expense
> or
>
> Report the LLC on Schedule C (husband and wife only LLC
> menbers) and as a disreguarded entity take the full amount
> of any interest paid on this loan and thus reduce Federal
> income taxes, SE taxes and NJ Gross Income taxes.
>
> In truth only the husband will be involved in this business.
> What possible reasons could the attorney have had by not
> forming a single member LLC?
just saw something in recent tax legislation that would
allow a h & w to use a sch c instead of a 1065 haven't read
thru the new laws just yet, so not sure how it might work in
your case
___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] >>>
-----> real address on hobokeni or hobokenx <-----
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Allan Martin on June 18, 2007, 9:27 am
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>> Husband and wife bought an exisiting retail/wholesale
>> business with the proceeds from an home equity loan (Loan
>> amount $300,000) and formed a LLC in the state of NJ. How
>> can these taxpayers:
>>
>> At very least deduct the full amount of interest expense on
>> the loan given that the loan is in excess of the 100,000
>> limit. and proceeds were not for investment property but a
>> trade or business. Thus reducing Federal income taxes.
> look at the interest tracing rules for guidance on deducting
> the interest expense
>> or
>>
>> Report the LLC on Schedule C (husband and wife only LLC
>> menbers) and as a disreguarded entity take the full amount
>> of any interest paid on this loan and thus reduce Federal
>> income taxes, SE taxes and NJ Gross Income taxes.
>>
>> In truth only the husband will be involved in this business.
>> What possible reasons could the attorney have had by not
>> forming a single member LLC?
> just saw something in recent tax legislation that would
> allow a h & w to use a sch c instead of a 1065 haven't read
> thru the new laws just yet, so not sure how it might work in
> your case
Ok you put me on the correct track. I assume you are talking
about the Taxpayer Protection Act of 2007. Now the big
question is does it apply to Husband-Wife LLCs? see below.
I. TAXPAYER RIGHTS
A. Family Business Tax Simplification
Present Law
Under present law, a partnership is defined to include a
syndicate, group, pool, joint venture, or other
unincorporated organization through or by means of which any
business, financial operation, or venture is carried on, and
which is not a trust or estate or a corporation (sec.
7701(a)(2)).2 A partnership is treated as a pass-through
entity, and income earned by the partnership, whether
distributed or not, is taxed to the partners. The income of
a partnership and its partners is determined under
subchapter K of the Code. An election not to be subject to
the rules of subchapter K is provided for certain
partnerships that meet specified criteria (i.e., the
partnership is for investment purposes only, is for the
joint production, extraction, or use of property, but not
for selling services or property produced or extracted, or
is used by securities dealers for short periods to
underwrite, sell or distribute securities). Otherwise, the
rules of subchapter K apply to a venture that is treated as
a partnership for Federal tax purposes. In the case of an
individual with self-employment income, the income subject
to selfemployment tax is the net earnings from
self-employment (sec. 1402(a)). Net earnings from
self-employment is the gross income derived by an individual
from any trade or business carried on by the individual,
less the deductions attributable to the trade or business
that are allowed under the self-employment tax rules. If the
individual is a partner in a partnership, the net earnings
from self-employment generally include his or her
distributive share (whether or not distributed) of income or
loss from any trade or business carried on by the
partnership.
Description of Proposal
The proposal generally permits a qualified joint venture
whose only members are a husband and wife filing a joint
return not to be treated as a partnership. A qualified joint
venture is a joint venture involving the conduct of a trade
or business, if (1) the only members of the joint venture
are a husband and wife, (2) both spouses materially
participate in the trade or business, and (3) both spouses
elect to have the proposal apply.
Under the proposal, a qualified joint venture conducted by a
husband and wife who file a joint return is not treated as a
partnership for Federal income tax purposes. All items of
income, gain, loss, deduction, and credit are divided
between the spouses in accordance with their respective
interests in the venture. Each spouse takes into account his
or her respective share of these items as a sole proprietor.
Thus, it is anticipated that each spouse would account for
his or her respective share on the appropriate form, such as
Schedule C. The proposal is not intended to change the
determination under present law of whether an entity is a
partnership for Federal income tax purposes (without regard
to the election provided by the proposal).
2 Unless otherwise stated, all section references are to the
Internal Revenue Code of 1986, are
amended (the "Code").
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Allan Martin on June 18, 2007, 9:27 am
Please log in for more thread options
>> Husband and wife bought an exisiting retail/wholesale
>> business with the proceeds from an home equity loan (Loan
>> amount $300,000) and formed a LLC in the state of NJ. How
>> can these taxpayers:
>>
>> At very least deduct the full amount of interest expense on
>> the loan given that the loan is in excess of the 100,000
>> limit. and proceeds were not for investment property but a
>> trade or business. Thus reducing Federal income taxes.
> look at the interest tracing rules for guidance on deducting
> the interest expense
I can only assume that the interest expense which (in this
case) can clearly be traced to the purchase of the new
business would be reported on a Schedule E. Where on this
form, if I am correct would it go and how would it be
worded? Is there any chance the interest can also reduce the
SE tax?
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>
|
|
Posted by Benjamin Yazersky CPA on June 21, 2007, 5:43 pm
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>>> Husband and wife bought an exisiting retail/wholesale
>>> business with the proceeds from an home equity loan (Loan
>>> amount $300,000) and formed a LLC in the state of NJ. How
>>> can these taxpayers:
>>>
>>> At very least deduct the full amount of interest expense on
>>> the loan given that the loan is in excess of the 100,000
>>> limit. and proceeds were not for investment property but a
>>> trade or business. Thus reducing Federal income taxes.
>> look at the interest tracing rules for guidance on deducting
>> the interest expense
> I can only assume that the interest expense which (in this
> case) can clearly be traced to the purchase of the new
> business would be reported on a Schedule E. Where on this
> form, if I am correct would it go and how would it be
> worded? Is there any chance the interest can also reduce the
> SE tax?
You have to look at the internal revenue code & the IRS
regulations to determine how you are going to apply the
interest expense. They require that you cross your t's &
dot your i's carefully.
___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] >>>
-----> real address on hobokeni or hobokenx <-----
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>
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