Today TaxMama hears from Phyllis in Iowa, who tells us: “I started a small business out of my home in October of 2005. In February of 2006 I made the business into an Limited Liability Company (LLC) with a partner. Do I need to file separate income taxes on myself and the business? If so what form do I use? Last year I was able to file it all together. The business is still run out of my home.”
Congratulations on your successful business!
Actually, you’re going to have to file two tax returns. And you have some decisions to make.
First of all, for the period from January 1 until you became an LLC, you will report the income and expenses on your personal Schedule C, since it was still simply your own business.
Starting in February, from the date you formed your LLC with your partner (or member), you will need another tax return.
Here’s where the decision comes in. An LLC with two or more owners, may file tax returns as any of these entities:
A partnership – A Corporation – An S-Corporation
So, I suggest that you both sit down with a good, local tax professional to decide what entity is best suited to your personal financial goals and needs – and that of your partner.
And since the business is run out of your home, you have some other issues, like does the business reimburse you for rent and utilities? How have you and your partner defined cost sharing and so forth.
And remember, you’ll find answers to lots of questions about LLCs and other tax information, free. Where? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips. Please click on the subscribe link and join us.]
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