Discussion:Husband/wife members of LLC
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| With that said, practically, I have never seen the IRS pursue this technicality and I find my husband and wife business/rentals clients do not want to file the additional tax return. Also, except for maybe "basis" issues, I think the net effect on their joint tax returns is the same. I usually explain this to the clients, let them decide, then make notes to the file regarding same. Probably not the simple answer you were hoping for...}} | With that said, practically, I have never seen the IRS pursue this technicality and I find my husband and wife business/rentals clients do not want to file the additional tax return. Also, except for maybe "basis" issues, I think the net effect on their joint tax returns is the same. I usually explain this to the clients, let them decide, then make notes to the file regarding same. Probably not the simple answer you were hoping for...}} | ||
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| + | {{ForumReplyPost|UserID=Casper|Date=7 January 2006|Text=Interesting topic. Ann attorney recently advised me that a husband and wife should elect multiple member status; even though we are a community property state. He claimed it would give the LLC better asset protection in case of lawsuit. Can anyone comment on this?}} | ||
Revision as of 04:06, 7 January 2006
Discussion Forum Index --> Tax Questions --> Husband/wife members of LLC
Clarklarry (talk|edits) said: | 15 December 2005 |
| I have a client whose LLC has 2 members: the husband and the wife. They file joint returns (federal and NC). My question: is this a single member LLC even though there are 2 members?
Thanks, Larry | |
| 16 December 2005 | |
| It depends on the state you are in and what kind of business the LLC is. If the LLC is a rental, you can elect to treat it as a single member LLC. See Rev. Proc. 2002-22, 2002-1 CB 733.
For any other type of business, the technical rule is that when a husband and wife own a business together, it is considered a partnership under tax law, unless another type of entity is elected, such as C or S Corporation. However, the IRS has recently ruled that if you are in a community property state, you can treat the husband and wife as one taxpayer for purposes of the single member LLC rules. See Rev. Proc. 2002-69, 2002-2 CB 831. Therefore, if you are in a separate property state, the husband and wife are considered to own interests separately, i.e. now you have 2 members of the LLC. Technically, unless the exception above applies, the husband and wife are considered "partners" in business and a partnership tax return is required unless you elect to be a C or S Corporation. This may not be a bad thing. Yes, it does require an additional tax return, but it also allows each spouse to have potential SE income/wages towards future social security benefits. Some computer programs will not split the Schedule C income between each spouse and calculate SE tax on each spouses share. With that said, practically, I have never seen the IRS pursue this technicality and I find my husband and wife business/rentals clients do not want to file the additional tax return. Also, except for maybe "basis" issues, I think the net effect on their joint tax returns is the same. I usually explain this to the clients, let them decide, then make notes to the file regarding same. Probably not the simple answer you were hoping for... | |
| 7 January 2006 | |
| Interesting topic. Ann attorney recently advised me that a husband and wife should elect multiple member status; even though we are a community property state. He claimed it would give the LLC better asset protection in case of lawsuit. Can anyone comment on this? | |
