Mar 18, 2008

Q & A: Single Member LLC

QUESTION: My husband and I just formed a LLC for our rental properties. Can we be considered a "single-member LLC" since we file our taxes jointly?
We have no employees (not even ourselves), but we filed for an EIN to open a bank account. The IRS sent a notice that we will need to file a 1065 next year for the business. I looked at Form 8832, but it doesn't address a married couple.
We were initially told that we could still just file the 1040 and Schedule E as we have for the last several years, but then our lawyer said we will have to file as a partnership.
I know if we are a "single member LLC", we can still file the joint 1040 with Sch. E and not have to do the partnership return. I would prefer to be a considered disregarded entity for tax purposes to keep our tax filings as simple as possible.

ANSWER: When a married couple owns a partnership or LLC, they are can be considered as "one" taxpayer for filing purposes. So you are correct in that you can file as a single-member LLC for tax purposes and use Schedule E as part of your 1040 return. Form 8832 is utilized to allow a LLC to elect to be taxed as a Subchapter S corporation. Generally, real estate related businesses are better suited to be taxed as LLCs rather than S corporations. You should consult with your tax advisor to determine the best option.

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