[Question] LLCs / Married Couple / Taxes - State of PA

[pixelrogue1]

Hello everyone,

We are purchasing two investment properties in the state of PA, with intent of purchasing them each with their own LLC. The question is around taxes.
We have other investment properties from years past, just in my name. Income/Expenses were reported on personal income through me as a pass-through so-to-speak. No special forms.

When it comes to LLCs, it appears that once there is more than one owner on the LLC, the income/expenses are no longer pass through reported as personal income/loss, but requires dedicated reporting for the LLC. If the LLC just has one owner, then the income/expenses can pass through. are maintained as reporting under personal.

In the state of PA - can a married couple own an LLC and it considered as 'one' owner so income/expenses pass through are still reported as personal w/o special dedicated LLC reporting requirements - or - do we need to have the husband own one LLC, the wife the other LLC, in order to maintain the income/expense passthrough as personal? Obviously we are trying minimize addition additional complications to tax returns etc.

 

[LdiJ]

Hello everyone,

We are purchasing two investment properties in the state of PA, with intent of purchasing them each with their own LLC. The question is around taxes.
We have other investment properties from years past, just in my name. Income/Expenses were reported through me as a pass-through so-to-speak. No special forms.

When it comes to LLCs, it appears that once there is more than one owner on the LLC, the income/expenses are no longer pass through but requires dedicated reporting for the LLC. If the LLC just has one owner, then the income/expenses can pass through.

In the state of PA - can a married couple own an LLC and it considered as 'one' owner so income/expenses pass through w/o special dedicated LLC reporting requirements - or - do we need to have the husband own one LLC, the wife the other LLC, in order to maintain the income/expense passthrough. Obviously we are trying minimize addition additional complications to tax returns etc.

You have the language wrong which will cause you problems.

A single member LLC is a disregarded entity therefore the income does not "pass through". It simply goes on your personal return as if the LLC did not exist. You cannot use the term "pass through" in this instance.

A multiple member LLC defaults to a partnership, the partnership must file a return, and the profit from the partnership passes through to the partner's personal returns, on a schedule K1. A partnership or an S-Corp are pass through entities.

 

[FlyingRon]

Why are you starting another thread on the same subject? This whole subject was beaten to death in your other thread: https://forum.freeadvice.com/threads/question-investment-property-llc-taxes.655905/#post-3652058

If you have additional questions, you should follow up there so people have context. As you were told before, since PA is not a community property state, the LLC with husband-and-wife members is not going to be disregarded, it will be treated as a partnership. You should read the posts that I and TaxingMatters wrote on the subject in the other thread.

 

[pixelrogue1]

You have the language wrong which will cause you problems.

A single member LLC is a disregarded entity therefore the income does not "pass through". It simply goes on your personal return as if the LLC did not exist. You cannot use the term "pass through" in this instance.

A multiple member LLC defaults to a partnership, the partnership must file a return, and the profit from the partnership passes through to the partner's personal returns, on a schedule K1. A partnership or an S-Corp are pass through entities.

Thank you.

 

[pixelrogue1]

Why are you starting another thread on the same subject? This whole subject was beaten to death in your other thread: https://forum.freeadvice.com/threads/question-investment-property-llc-taxes.655905/#post-3652058

If you have additional questions, you should follow up there so people have context. As you were told before, since PA is not a community property state, the LLC with husband-and-wife members is not going to be disregarded, it will be treated as a partnership. You should read the posts that I and TaxingMatters wrote on the subject in the other thread.

*looking*

The topics overlapped, I thought that thread finished, and thought input from different subject groups would too valuable. I see your point. This thread seems more direct now (my fault) and I will add a link to this thread from the other.

Is there value in husband/wife maintaining separate LLCs/loans, or keeping it all together and going through the partnership route?
On a scale of 1-10 (10 being most difficult,) would you see adding a new separate return for each LLC + schedule K1 (every year) adding complexity/difficulty? Overkill? Am I over thinking this?

 

[LdiJ]

*looking*

The topics overlapped, I thought that thread finished, and thought input from different subject groups would too valuable. I see your point. This thread seems more direct now (my fault) and I will add a link to this thread from the other.

Is there value in husband/wife maintaining separate LLCs/loans, or keeping it all together and going through the partnership route?
On a scale of 1-10 (10 being most difficult,) would you see adding a new separate return for each LLC + schedule K1 (every year) adding complexity/difficulty? Overkill? Am I over thinking this?

The fact that you would have to file separate returns for the LLCs if they default to a partnership should not even be a relevant factor. You should be making your decision based on everything else involved. Certainly you both being members of each LLC would help with estate planning, for example, but if the two of you are young, that might not be as much of a factor. You have to make your decision based on the factors in your life, not on whether or not taxes will be a little more complicated.

 

[quincy]

Please continue with this discussion on your other thread. Thanks.

 

[Taxing Matters]

When it comes to LLCs, it appears that once there is more than one owner on the LLC, the income/expenses are no longer pass through but requires dedicated reporting for the LLC. If the LLC just has one owner, then the income/expenses can pass through.

When a LLC has two or more members it is treated for federal tax purposes as a partnership. The income and expenses of the partnership pass through to the owners, too, it's just that the reporting is done differently. With a one member LLC the business is treated like a sole proprietorship, so the income goes directly on your personal return on Schedule C. A partnership, though, files its own return, a Form 1065. The partnership doesn't pay tax, but the return tells the IRS how much income it had and how much of it is allocated to each partner. The partners then each get a Schedule K-1 telling them what their share of the partnership income was. The partners then use that to prepare their personal returns, with the income going on Schedule E. For the most part the tax result is much the same either way, but with the partnership you end up with that extra partnership return to file.

In the state of PA - can a married couple own an LLC and it considered as 'one' owner

No.

or - do we need to have the husband own one LLC, the wife the other LLC,

That's another way to go. You could also form a LLC that the two of you own as a partnership and then have that LLC own the LLCs that own each property if you want the properties in different LLCs. There are lots of ways you could do it.

You might want to discuss this with a tax attorney for advice on the tax and legal ramifications of the various options you have.

 

[quincy]

Please continue with this discussion on your other thread. Thanks.