Discussion:Common Stock in LLC taxed as S Corp?
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Discussion Forum Index --> Tax Questions --> Common Stock in LLC taxed as S Corp?
| 20 January 2011 | |
| I know I've seen this topic discussed on this website, but can't find it via yellow box now that I need it. Let me preempt JR1 by saying I too, would prefer original S Election over LLC taxed as S, but when clients bring you lemons sometimes you make lemonade.
So, what would my balance sheet look like on 1120S. I assume no common stock, and all member's equity as retained earnings? | |
| January 20, 2011 | |
| But as I was trying to ignore this...definitely not retained earnings. I'd go with Add'l Paid in Capital I suppose...? | |
| 20 January 2011 | |
| Additional to what? The LLC agreement should have an amount that is allocated to initial funding. This I would put as capital stock. The remaining would then be paid in "additionally". I agree with JR though...not retained earnings. | |
| 20 January 2011 | |
| I agree with JR1. An LLC taxed as an S Corp still doesn't have any stock and nothing on the balance sheet for a stock amount. Member contributions shown as APIC. | |
| 20 January 2011 | |
| What about the fact it was actually taxed on 1065 in the initial year of the LLC - 2009, and that we're electing S beginning in 2010. A portion of their member's equity is contributions, but it also includes income from 2009, that would have been Retained Earnings had they been an S Corp in 2009.
Should I treat a portion of the members' equity as RE and a portion as APIC, or should it all be APIC? To add to the complication, the 2 owners were 51/49 at 12/31/09, but their contributions had been 50/50. So, on their 2009 tax return their capital accounts showed as not being equal to ownership percentage. Now, at 1/1/10, we began to treat them as an S Corp. How do I adjust their accounts ownership to be 51/49. My first instinct is to reclass a portion of 49% owner's capital as a note via a distribution, but I can't make a distribution that isn't prorata in an S. We're only talking a few hundred dollars, but how do I make this adjustment? | |
| January 20, 2011 | |
| Dude. You don't keep Retained Earnings in a 1065. You close the earnings to the capital accounts each year. That's what becomes the apic. Don't confuse yourself. | |
| January 20, 2011 | |
| I can't speak to the 51/49 split with an LLC electing S, don't know how that works. | |
| 20 January 2011 | |
| "Don't confuse yourself" is good advice for me.
So I'm clear, you're saying they should keep their separate capital accounts on their books, then I'll group them all as APIC on the 1120S? I assume their capital accounts need to be kept proporationate to their ownership percentage as required in an S, (they are in fact tax-wise, an S, right) which is what leads me back to my 51/49 question. | |
| January 20, 2011 | |
| Yes, to the first for sure...and again, I'm not sure how to ensure the 51/49 thing is correct. Can they merely agree and reflect that? Maybe since it's only a few hundred bucks, your idea is better. Either have the one pay to make it 51/49, or do a note for the differential. | |
| 20 January 2011 | |
| I think I've go the 51/49 thing resolved, but what about distributions, do they reduce the APIC each year? | |
| January 20, 2011 | |
| You'd follow the S corp rules then...distributions can't make AAA go negative, so anything in excess of net profits would reduce APIC, yes. | |
| 20 January 2011 | |
| You had a partnership for 2009. It ended and books closed; then you contributed everything at book value to start an S Corp. Opening capital recorded as APIC. You have an AAA account for the earnings while taxed as an S Corp and distributions can take that down to zero. | |
