what is the advantages or disadvantages of LLC for tax purpose.?

Question

My client has a investment property with partner but it is not a partnership they just file schedule E. Now we need to create a LLC to protect their personal assets. What are the advantages of LLC? thanks

It is not a partnership ... they are two buddies that they invest in rental property and they split the net 50-50 on the schedule E.

Answer 1

Your client IS a partnership. How are you preparing Schedule E for this??

There are no tax advantages to an LLC, and in many cases some significant disadvantages. With Federal income taxes a multi-member LLC is treated as a partnership and must file a partnership return. The income flows to the partners via the partnership return. (This is what you should be doing right now.)

Most states require LLCs to file as corporations and pay the minimum corp excise tax which can run as high as $800 regardless of income or loss on the business.

Unless they are involved in a risky business, the protection of an LLC is not worth the extra expense of the taxes and return preparation. Tell them to get a good commercial liability insurance policy. It will provide better protection and cost less in most cases.

Addendum: You have defined a partnership -- two or more persons in a business venture that isn't organized as a corporation. Call it a pepperoni pizza if YOU want to, the LAW says it's a PARTNERSHIP! (And if you are their "tax prep person," you're not doing them any favors as you don't know what you're doing.)

Answer 2

Listen to Bostonia. They DO have a partnership.