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Okay, not sure if I'm asking in the right forum but I find people in this investing section seem to have more knowledge than the general business section.
Anyhow, long story short my friend and I started an LLC about 2 years ago. Due to a non compete with the company I was working for at the time I kept my name off of it. Fast forward 2 years I want to be added onto the LLC. What are the tax implications?
This company is half mine, though on paper it all belongs to my friend. I contributed upfront and have been a part of it since the beginning. I'm kind of stupid when it comes to tax type stuff. I talked to an accountant who said it will be complicated because on paper techincally I should be being gifted a company worth a little under 2 million dollars however in actuality I've been a part since day one and half is mine.
Was wondering if there's any advantages to doing say a new S Corp as opposed to a LLC and either way how to go about adding myself on without getting hammered with taxes
You really should talk to a good accountant. Partnership taxation can get tricky. Presumably the LLC filed a K-1 last year, so have you been paying taxes on the LLC income thus far? Or has your partner been paying all the taxes?
You really should talk to a good accountant. Partnership taxation can get tricky. Presumably the LLC filed a K-1 last year, so have you been paying taxes on the LLC income thus far? Or has your partner been paying all the taxes?
If he isn't officially part of the the LLC, then it is a single member LLC, and most likely a disregarded entity for tax purposes. The other LLC member would have been filing as a sole proprietorship, and paying all the taxes.
If he isn't officially part of the the LLC, then it is a single member LLC, and most likely a disregarded entity for tax purposes. The other LLC member would have been filing as a sole proprietorship, and paying all the taxes.
This ... plus if you "gave" more than $14,000 to your friend (or you and your spouse more than $28,000) in a given year, then you have to, or should have, reported it to the IRS on a gift tax return, but not necessarily actually paid gift taxes.
There is a huge lifetime exemption on gift/inheritance tax of more than $5 million (more than $10 million for married couples), indexed for inflation, but the reporting threshold in any given year is $14,000/$28,000, indexed for inflation.
So you may have to file an information gift tax return for the past two years (check with an expert what the penalties may be for late filing), but most likely you will not be taxed on it since it does not appear to exceed $5M+.
There may be other ways to report it, perhaps as a loan to your friend, but, for tax purposes you will have to charge the minimum legal rate of interest (something like 3.25%, check the IRS website) and report it as income.
In any case, the above is a very rough outline, indeed please consult with a tax expert/CPA - and good luck finding a competent, plain-talking one in your area who doesn't charge an exhorbitant price with no guarantees that he'll do it right - or study yourself those parts of the tax code pertinent to your situation - accompanied by a bottle of aspirin and a bottle of tums, with no guarantees that you'll do it right, and no guarantees that any IRS personnel dealing with your returns will understand anything and do it right.
In any case, the worst thing is not to report any income, and there is no reason not to because the effective federal tax rate in the US is a reasonable 17% or so, but the problem is figuring out how to report it among some four million words of often contradictory instructions.
You really should talk to a good accountant. Partnership taxation can get tricky. Presumably the LLC filed a K-1 last year, so have you been paying taxes on the LLC income thus far? Or has your partner been paying all the taxes?
because its a single member it goes on his personal income with his wife. i have basically been getting paid kinda like a contract employee no taxes taken out and 1099 at end of year
This ... plus if you "gave" more than $14,000 to your friend (or you and your spouse more than $28,000) in a given year, then you have to, or should have, reported it to the IRS on a gift tax return, but not necessarily actually paid gift taxes.
There is a huge lifetime exemption on gift/inheritance tax of more than $5 million (more than $10 million for married couples), indexed for inflation, but the reporting threshold in any given year is $14,000/$28,000, indexed for inflation.
So you may have to file an information gift tax return for the past two years (check with an expert what the penalties may be for late filing), but most likely you will not be taxed on it since it does not appear to exceed $5M+.
There may be other ways to report it, perhaps as a loan to your friend, but, for tax purposes you will have to charge the minimum legal rate of interest (something like 3.25%, check the IRS website) and report it as income.
In any case, the above is a very rough outline, indeed please consult with a tax expert/CPA - and good luck finding a competent, plain-talking one in your area who doesn't charge an exhorbitant price with no guarantees that he'll do it right - or study yourself those parts of the tax code pertinent to your situation - accompanied by a bottle of aspirin and a bottle of tums, with no guarantees that you'll do it right, and no guarantees that any IRS personnel dealing with your returns will understand anything and do it right.
In any case, the worst thing is not to report any income, and there is no reason not to because the effective federal tax rate in the US is a reasonable 17% or so, but the problem is figuring out how to report it among some four million words of often contradictory instructions.
Good Luck!
thanks yeah im definately going to talk with an accountant, i know there's some bright people on here and wanted to get some ideas to bring up to him and make sure what you guys are saying is jiving with what the accountant is saying so i know he's on the right track. thanks again.
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