Thanks Roger for you help and information. Sorry to just get back to you. I really appreciate all your information. Let me see if I understand. Each of our LLC’s file a seperate 1065 K-1 and report the profits/loss on 1041 K-l. I believe that since there are 2 members of each of the LLC’s then the IRS considers us a partnership even though we are married. How are either the profits or losses divided up among the 2 members? Is there a formula? Our LLC’s are owned by our Trust, but still the LLC’s show 2 members. Any idea?
Thanks again for all your advice.
When we set up our family trust, we had the trust own our LLC’s, we obtained EIN’s. So, would our tax status still be sole proprietor and can we use our EIN’s to save sales tax on products used to renovate, etc…our real estate properties or anything that is included in our LLC’s? Are there any liabilities? Thanks, maybe I’m just confused and off track. I would appreciate any information you could offer, I will still pass these ideas if needed by our lawyer too.
Starting at the bottom of the pyramid, each LLC files its own tax return (that is primarily why each needs its own EIN. The LLC tax return generates a Form 1065 K-1 (Federal)which allocates the income or loss to the trust. The Trust reports this allocated profit or loss at Form 1041 Line 5. If the trust is required to fully distribute, the beneficiareies receive their share of profit /loss / interest etc., on a form 1041 K-1. In turn you, as that beneficiary, report it on Schedule E page 2 and ultimately on Form 1040 Line 17. Proprietors operate businesses as sole owners and report profits or losses on Schedule C (that transfers to Form 1040 Line 12). By definition, lessors of property are not “in business” and report profits or losses on Schedule E They are not a sole proprietors as to properties they own. If you manage or maintain properties owned by another entity (say the LLCs)then your management /maintenance fees are self-employment income that can be reported on Schedule C. So much for income taxes.
The sales tax issue is different. A sales tax exemption on stuff you buy ONLY applies to things you buy to place in inventory and eventually sell. The ultimate user of that merchandise will pay the tax (and you will collect it and pay it over to the sales tax agency). Thus, if you buy maintenance supplies for the LLCs and pay no sales tax on purchase, then you will collect that tax from each LLC when they receive the merchandise. No sales tax savings either way, just different reporting.