LLC taxing

[ybor]

What is the name of your state? Tampa, Florida Hillsborough County

I am starting an LLC in Tampa, Florida and want to form a multi-member LLC for the dual asset protect and because the LLC will own other single member LLCs. My brother is willing to be on the LLC as a managing member or manager but does not want to have to file the companies profits on his tax returns. The LLC will be set up with pass-through taxation and I am looking for the best way to set this up so that I am taxed on 100% of the profits made by the LLC and he doesn't get taxed at all and will not have to file it on his taxes. I know that a multi-member LLC has to file a tax return while a single member LLC does not have to file. After asking this question to an attorney, and he replied with this:

"I understand that you can put another person as a member but you
could pay 100% of the taxes, but you need to ask an accountant for
the best way to do that for your situation."


Thanks for all help in this matter.

Sean

[tdavidl]

with an LLC, you generally elect to pay tax as a partnership (form 1065) or a corporation (form 1120 or 1120-s). if you want the flexibility of determing the pass-thru income\loss\deductions each year then llc as a partnership is what you want.

[ybor]

Being taxed as a partnership is what I plan to do. What my may question is if the LLC is a partnership, can I claim 100% of the profit/loss while my brother claims 0%?

[LdiJ]

Originally Posted by ybor

Being taxed as a partnership is what I plan to do. What my may question is if the LLC is a partnership, can I claim 100% of the profit/loss while my brother claims 0%?

I don't think that's possible. What you would need to do is set things up so that your brother's percentage in the business is very very small. That wouldn't stop him having to report profits/losses on his tax return, but it would make the impact fairly minimal. Something along the lines of 98/2 or 95/5.

[tdavidl]

Originally Posted by LdiJ

I don't think that's possible. What you would need to do is set things up so that your brother's percentage in the business is very very small. That wouldn't stop him having to report profits/losses on his tax return, but it would make the impact fairly minimal. Something along the lines of 98/2 or 95/5.

i respectfully disagree. i can own 50% of a partnership (llc in this case) and make an agreement with my partner that he gets all of the operating income. that's one of the benefits of a partnership, the flexibility in income\loss allocation from year to year.

to give you an example, lets assume i''m the money man & i decide to form a partnership with my brother who is the handyman. we buy a piece of real estate. our deal is that while he's managing the property, fixing it up etc. & renting it out, i'm going to let him keep all the net rental income for his efforts, all i did was put up the cash. that's entirely legal. when we sell & make a profit on the appreciation we split that 50/50.

[LdiJ]

Originally Posted by tdavidl

i respectfully disagree. i can own 50% of a partnership (llc in this case) and make an agreement with my partner that he gets all of the operating income. that's one of the benefits of a partnership, the flexibility in income\loss allocation from year to year.

to give you an example, lets assume i''m the money man & i decide to form a partnership with my brother who is the handyman. we buy a piece of real estate. our deal is that while he's managing the property, fixing it up etc. & renting it out, i'm going to let him keep all the net rental income for his efforts, all i did was put up the cash. that's entirely legal. when we sell & make a profit on the appreciation we split that 50/50.

I posed this question throughout our office before responding. Three enrolled agents and two CPAs came up with the answer. The consensus was that because an LLC allocates specific percentages of ownership to each member (similar to a corp) that the ability to "shift" income from one member to another didn't exist in the same manner as a partnership. The income must be reported based on the percentage of ownership.

Another way to handle it would be to pay himself all of the profits of the company as a salary, so that there was no income to distribute...however that wouldn't work in the case of a loss, therefore that option was discarded.

[tdavidl]

LdiJ,

sounds like this person may have to get a 3rd opinion to make their decision. i only spent about 10 minutes or so checking my references & according to everything i read, LLC's are goverend by subchapter K of the IRC which is the partnership section (unless of course an election is made to be taxed as a corporation). i do agree that income\losses should be allocated based on ownership percentages IF that's what the operating agreement calls for, however, members of an LLC can write that operating agreement as they so choose.

we'll just have to agree that we don't agree.