We have our house – personal portion
We have our LLC for our rental business - business portion
They have a seperate rental property tax section but how do I do that if the LLC is our rental business?
Also we transferred 55K from savings into the LLC to start our business. When I enter it into the business tax as income, it wants we to pay like 20K in taxes. How do I get around that? We purchased a home for $30K out fo the 55K.
Please help me know what to do.
Thanks, Tam
How is the LLC taxed? What did the person who set up the LLC tell you? However, I suspect you will need a competent tax preparer or CPA to do the returns for you.
They didn’t tell me anything about managing the LLC.
That’s why you should never go with DIY kits or set up something without actually talking to someone. You will have to hire a tax expert to figure out things for you and the filing deadline is approaching. You can probably expect to pay a premium since you coming so late.
Another problem you will have is that you LLC won’t protect you if it’s not run properly. The majority of investors don’t run them properly and those that do still have a problem. They don’t have the $50K to defend a lawsuit. Most of the attorneys I know charge extra when the client is not a referral or they defend an entity they did not set up.
Are your rentals owned by the LLC or by yourself? It is not clear whether you are using the LLC to manage the properties that you own or whether the LLC owns the properties. If the rentals are still in your names, then just report your rental income and expenses on Schedule E as you did last year. If the LLC owns the properties AND you are in a community property state, then you need to know how your LLC elected to be treated for tax purposes. Look at the filing documents and see if “Disregarded Entity” is checked. If it is, then you still report your rental income and expenses on your Schedule E (1040) as if the LLC did not exist.
For now, let’s say that your LLC owns the rental properties and that you do not live in a community property state. Since both you and your spouse are members of this LLC (you said “we have our LLC”), I strongly suspect that your LLC is being treated as a partnership for tax purposes. In this case, the LLC files a partnership tax return and all your income and expenses from the rental activity are reported on IRS Form 1065. Once the partnership return is done, the partnership (LLC) needs to give each partner (member) a Schedule K-1.
Once you have the Schedule K-1s, enter all the K-1 information into TurboTax in the section where you report Partnership and S-Corp income. TurboTax will figure out what goes where on your 1040.
The $40K you used to fund the business is either a capital contribution or a loan, but in either case it is not a deductible expense. Suggest you get with a CPA to figure out how you should document this contribution/loan so that when the LLC pays you back, the $40K is not treated as taxable income on your personal 1040.
Also suggest you get the CPA or a licensed tax professional to prepare your partnership tax return, at least the first time. Once you see how it is done, you can use this year’s tax return as a model to do it yourself next year with TurboTax Business (about $105 at Office Depot). TurboTax Home, or TurboTax Home and Business will support your personal 1040, but TurboTax Business is needed for a partnership tax return
Thank you, Dave T. Appreciate your assistance rather than your blasting me for my ignorance. I am all about doing things correctly and by the law, but I don’t jump immediately into attorney’s and accountant’s offices at every whim. I like to know that I am making knowledgeable decisions.
2008 was the first year we started the LLC, but the first loan wouldn’t let us purchase the property under the LLC so we purchased it under our name. The 2nd house was purchased by the LLC in November 2008. We have purchased 3 more homes by the LLC in 2009 and transfered the first home under the LLC as well. I have every intention of using an accountant for 2009 but I thought I could probably do the 2008 taxes on TurboTax for Home & Business as it said it was for LLCs and we don’t have a very big business yet.
I got on Turbo Tax help last night and it started to give me some insight. As you said, our LLC is setup as a member LLC with my husband and I being the only members. I will check our filing doucments as you stated for the Disregarded Entity. We are in MO so I will figure out how to determine if we are a community property state.
Thanks for the contribution info ont he $40K. I kinda figured that out after I asked the question, but it helps to have someone confirm it.
It seems I may have to do both a schedule E for the first property not owned by the LLC and a 1065 for the property owned by the LLC this year. Next year will be much cleaner since all properties will be owned by the LLC. So I can have someone do just the LLC taxes and then incorporate them into my Home & Business Turbo Tax for the filing or will they file seperate?
Thanks again, Dave. You always bring such great advice.
Tam
MO is not a community property state.
the LLC will need to file a 1065 (or 1120/1120-s if corporate taxation was elected).
since your only activity started in Nov, you’ll probably have zero revenue. maybe some utilities/insurance type expenses. small amount of depreciation. Hard part is getting the basis correct.
the 1065 will give you and your wife each a K-1 for the loss, which then goes on your 1040. Turbotax will handle this part easily.
but I don't jump immediately into attorney's and accountant's offices at every whim
for the $100 you spent on turbotax plus whatever your time is worth for the couple of hours you’ve jacked with it, you could have had a professionally prepared return. and be done by now.
Part of making money in real estate is knowing when to do something yourself and when it’s worth it to let someone else handle what they’re good at.
An LLC is treated for tax purposes as a
You may have already figured it out by now, but TurboTax Home and Business is is really for the sole proprietor who needs extra help with Schedule C (1040). This version of TurboTax will only handle the LLC treated as a disregarded entity because that is also the only form of LLC that does not file its own tax return.
The LLC treated as a corporation files Form 1120 and the LLC treated as a partnership (as yours is) files Form 1065. TurboTax Business is designed to handle these for you as well as a trust tax return (Form 1041).
This is not to answer your question but general information. You business will eventually get too big for TurboTax or TaxCut. When it does, your CPA will wind up unraveling and amending pretty much all the work you have done leading up to that time. You will probably not do the deprecation right and it will be confusing. I recommend you start using a CPA from the very first house. Even if the tax return is simple, use him anyway. Simple returns with 1 or 2 houses don’t cost much to prepare anyway. But you will be in position for when they get more complicated the benefit will be great. Businesses need CPAs and lawyers. If you try to save a nickel you will end up spending a dollar.
Bluemoon’s advice is golden. USE A CPA! Try to get a good one that communicates with you.
We spent thousands re-doing the first CPA’s work and trying to unravel it. Now is the time to code your houses by address, or purchase date, or some other system in your computer. Plan on getting bigger. Set up everything right now.
Not having enough emphasis (my time) on accounting was my biggest starting error. Get a CPA who will FIRE YOU if you don’t set up proper record-keeping. Then you will do it.
Good luck.
Furnishedowner
Thank you, everyone. I do want to grow big. I guess part of me is afraid to trust anyone like attorneys and cpas. I don’t know how to pick one. I have asked around and searched online in my local area and I want to go with one that knows real estate law and taxes. I kept searching and couldn’t find one before tax time so I decided to do it myself this last time. Probably a big mistake. How do I find one locally? Also – do I have to take my receipts by all year long? How does it work – do I need a bookkeeper as well? Can they do both? What does it cost to hire a CPA?
I read TurboTax and it said that I had to file a 1065 with one EXCEPTION. If a husand and wife are the only members of their LLC then they can divide everything and do two seperate C forms. I did that and it seemed to work fine. But I will most definitely file with a CPA next year. But I will start looking for one now.
Thank you very much.
Tamara
I think you misinterpreted the TurboTzx exception.
As a general rule, if spouses are co-owners of an “unincorporated” business, they are a partnership and file a partnership return.
The exception your read applies only if the business is a “sole proprietorship” that can be characterized as a joint venture rather than an unincorporated partnership.
Your problem is that you have “incorporated” yourselves already as an LLC. You are a partnership. The exception you read about in TurboTax does not apply to your situation.
Now that you incorporated your LLC, will your state also be looking for a business filing from your LLC?
Better get with a CPA before you get too much further into
ok – you are right. thank you.