Inside Small Business | Small Business & Home Business Marketing
LLC May be the Wrong Choice Part 2
The IRS rejects the filing.
Why? Well, there is only a single owner of the LLC, so how can a partnership tax return be filed? The IRS is correct in asserting that it cannot. You would need a second party to make it work.
At this point, things can get real nasty. Since the IRS views the partnership as invalid, it is going to require our single owner to treat the business as a sole proprietorship. This will require the payment of the 15.3 self-employment tax and usually the re-filing of the personal tax returns of the owner since the business tax information must now be filed on his or her Schedule C. You may also have to pay penalties and interest on any amount due.
Before you start complaining about the IRS, you should know that the position it is taking is entirely correct. The states are the responsible parties in this mess. Each state controls the laws regarding creating business entities within its boundaries. Despite the self serving statements of politicians about helping small businesses, the primary purpose of these laws is to generate fees. In
Is there any strategy for avoiding this problem? Yes. Many small businesses are looking to “S” corporations instead of LLCs when there will be only one owner. The IRS treats these entities entirely different and one usually ends up in a better situation from a tax perspective. Make sure to speak with your CPA or tax professional regarding the options applicable to your specific situation.
About the Author
Richard A Chapo, Esq., is the lead attorney and owner of SanDiegoBusinessLawFirm.com. He provides legal services in the fields of business entity formation and internet law to large and small
Posted on Thursday, March 13th, 2008 at 10:11 am and is filed under Business, Entrepreneurship, Legal, Money/Finance. You can follow any responses to this entry through the RSS 2.0 feed.
