Tax Law and LLCs

What is the name of your state? Kansas
I am involved in an LLC with 2 other people. We received a K-1 at the end of the year showing our loss for the first year. Several expenses were not included on the K-1 for my personal stuff such as gas, supplies, etc that we as our business felt these would be spent by each of us. Can I on my personal tax return take these deductions somewhere to reduce my income or does it have to all run through the LLC? Everyone seems to give a different answer to this.

Thanks

Kansas

I am involved in an LLC that is doing quite well. We started it in June of 04 and we anticipate a huge net income by the end of the year. Is there anything personaly I should start to do so I don't get hit with a huge tax bill on my personal return for 2004?

Thanks

[abezon]

It sounds like your LLC opted to be taxed like a partnership. Partners cannot deduct personal expenses against partnership income UNLESS the written p'ship agreement requires each partner to pay certain expenses. Your best bet is for the LLC to reimburse you for expenses and purchase the supplies from you. Alternatively, you can make sure the written p'ship agreement states what expenses each partner is required to pay out of pocket. These expenses would be deducted on page 2 of the Schedule E.


RE: profits: If you're going to make large profits on the other LLC (sounds like there are 2 different LLCs involved), you're probaly better off to be taxed like a corporation. (You might even want to switch to being an S corp -- talk to an accountant.) With a partnership/LLC, all profits are considered self-employment earnings. You'll pay SE taxes on the profits and they will be taxed as ordinary income (up to 35% or more). With a C-corp, you pay yourselves a FAIR wage and can take the rest of the profits out as dividends. This saves SE taxes AND might qualify to be taxed under the special dividend/capital gains tax rate (max 15%). BUT, the C-corp pays taxes itself. You'd need to talk to a savvy accountant about what is the best way to structure the corp & pay the taxes.

Please note, the LLC pays the accountant for advice & writes off the expense.