General Partnership income from vacation rentals

[manitoufs]

I live in North Carolina. My wife and I purchased a cabin rental business and registered it with the Feds as a General Partnership. We own the RE and only use the partnership to run the business.

I am using TurboTax personal & for small businesses to prepare the 2005 taxes. I am treating the real estate as personal assets and showing no rental income or expenses. All income (or losses) would flow thru the partnership and be part of our K-1's. This would include all operation expenses associated with the real estate.

Does this sound like a reasonable scenerio? I understand, in retrospect, that this is not the best way to handle the business (too soon we get so smart) but, because of the way the EIN was issued, I am stuck with the partnership.

I am new to this whole thing. Any input is welcomed.

[LdiJ]

I live in North Carolina. My wife and I purchased a cabin rental business and registered it with the Feds as a General Partnership. We own the RE and only use the partnership to run the business.

I am using TurboTax personal & for small businesses to prepare the 2005 taxes. I am treating the real estate as personal assets and showing no rental income or expenses. All income (or losses) would flow thru the partnership and be part of our K-1's. This would include all operation expenses associated with the real estate.

Does this sound like a reasonable scenerio? I understand, in retrospect, that this is not the best way to handle the business (too soon we get so smart) but, because of the way the EIN was issued, I am stuck with the partnership.

I am new to this whole thing. Any input is welcomed.

You are not stuck with the partnership. You can disolve the partnership and reform your company however you feel is best.

However if you stick with the partnership your scenario is reasonable. However it would be cleaner if the land was either part of the partnership assets, or the partnership paid some rent for the use of the land.

[manitoufs]

Thanks for the input. I realize I can desolve the partnership but, what about retroactively for 2005? When I called the IRS they told me I could not. How does the EIN relate legally to my filing status for 2005?

Rent from the partnership certainly makes sense should I continue down this path. I would assume that I am stuck with what I have for 2005. I don't want to put myself in a position of falsifying payments as a matter of convenience.

Looking to the future, a Schedule C business seems to look a lot simpler for what we have going on. Aside for potential personal liability, do you see any red flags?

[LdiJ]

Thanks for the input. I realize I can desolve the partnership but, what about retroactively for 2005? When I called the IRS they told me I could not. How does the EIN relate legally to my filing status for 2005?

Rent from the partnership certainly makes sense should I continue down this path. I would assume that I am stuck with what I have for 2005. I don't want to put myself in a position of falsifying payments as a matter of convenience.

Looking to the future, a Schedule C business seems to look a lot simpler for what we have going on. Aside for potential personal liability, do you see any red flags?

Well...first, you could file a zero income return for the partnership for 2005 and then report the cabin rental income as a schedule C business for 2005. However, it may be more complicated than you think if you and your wife are doing this jointly. Filing a joint schedule C has some complexiities. It also obligates you for self-employment taxes on the entire profits of the business (which might end up being the case anyway...or may be irrelevant if your first year is a loss).

Also, a partnership really doesn't help you in terms of personal liability. Only an LLC or a corporation really limits personal liability.

It may be that an S-Corp is the way that you should have gone on this....with you and your wife both owning shares.

What I really recommend is that you get a consult with a CPA regarding the best set up for your business......and help from either a professional tax preparer (an enrolled agent, or someone who specializes in business returns) or a CPA for 2005 taxes.