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Subject Author Date
Can married taxpayers report LLC on schedule C? Allan Martin 06-08-2007
Posted by Allan Martin on June 19, 2007, 9:29 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?

>> 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

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Posted by Mark Bole on June 12, 2007, 1:06 am
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 Allan Martin wrote:

> 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?

Perhaps the attorney was representing both spouses? Gotta
be careful about those conflicts of interest.

Before 2007, in a separate property state, husband-and-wife
business is a partnership and cannot use a Schedule C.

In principle, the security for a loan and the use of the
loan proceeds are two separate things. If there is a very
careful accounting of the separate loan proceeds, it should
be possible to allocate the interest expense for personal
residence mortgage and business loan. However without the
benefit of reading other replies sitting in the queue, I
will qualify my answer.

-Mark Bole

<< ------------------------------------------------------- >>
<< 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. >>
<< ------------------------------------------------------- >>

Posted by Allan Martin on June 18, 2007, 9:27 am
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> Allan Martin wrote:

>> 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?

> Perhaps the attorney was representing both spouses? Gotta
> be careful about those conflicts of interest.
>
> Before 2007, in a separate property state, husband-and-wife
> business is a partnership and cannot use a Schedule C.

Mark, you say before 2007, can I assume that beginning in
2007 a husband-and-wife LLC in NJ can use a Schedule C?
What is your source for this change?

<< ------------------------------------------------------- >>
<< 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 kastnna on June 18, 2007, 9:27 am
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> 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?

Off the top of my head, retirement & estate planning. Solo
401(k)s come to mind. An LLC with eligible employees other
than partners cannot create solo 401(k)s. They must use
SEPs, 401(k)s, SIMPLEs, etc, etc... that may have higher
costs or more prohibitive contribution limits.

Having both of them as share holders also allows them to use
cross- purchase buy/sell agreements to secure life insurance
that can be deducted as a business expense and/or paid with
pre-tax dollars from a pension plan.

<< ------------------------------------------------------- >>
<< 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 kastnna on June 19, 2007, 9:29 pm
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> 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?

Off the top of my head, retirement & estate planning. Solo
401(k)s come to mind. An LLC with eligible employees other
than partners cannot create solo 401(k)s. They must use
SEPs, 401(k)s, SIMPLEs, etc, etc... that may have higher
costs or more prohibitive contribution limits.

Having both of them as share holders also allows them to use
cross- purchase buy/sell agreements to secure life insurance
that can be deducted as a business expense and/or paid with
pre-tax dollars from a pension plan.

<< ------------------------------------------------------- >>
<< 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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