Tax Law (Questions About Taxes)/LLC Taxes

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Question
Hello,
I am planning on forming another LLC in Texas and I would like to make my only my current single member TX LLC and a family member(my mother) members for the new LLC so I would not be a disregarded entity. My question is, is this really helpful if my current LLC is already taxed as a disregarded entity? Also, my mother will be an inactive member so do I, if ever, need to distribute to her if she is inactive in the daily operations and receives only one percent ownership? If so, does she pay taxes at the end on the year on distributed/undistributed shares?  Thanks

Answer
Moving from a Disregarded Entity that transfers all the tax liability to your personal tax return, to, being taxed as a partnership that still transfers all the tax liability to the personal return is NOT advantageous.

Disregarded or not, the LLC is a pass-through entity, so are general and limited partnerships, and S-Corporations. None of these pays any tax themselves, they all pass the tax liability to the owners so the owners can pay all the taxes on their personal tax return.

Personal taxes are the highest taxes.

But back to your question:

The LLC can distribute inequitably. So it wouldn't have to distribute anything to her, if she gets nothing she pays no tax. If you do distribute something, then she would be liable for taxes on whatever she got.

I am running on the assumption that you are in a successful and profitable business. That taxes are a concern and that you would like to manage them down if possible.

If that is the case, then the LLC is not your best choice. The LLC is often recommended for "start-ups" but you are not a start-up any more.

The LLC being a pass through can work for a start-up because it passes through LOSSES to you personally. But you aren't passing losses you are passing taxable income. Time to change.

Call me.

Richard Fritzler
877-627-7761  

Tax Law (Questions About Taxes)

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Richard Fritzler

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Specializing in Business and Corporate taxation. Comparing the advantages and requirements of different business entities, such as Sub-S Corporations, LLC`s, Partnerships (Both Limited and General), Doing Business as a Sole Proprietor, or Using a C-Corporation. Issues regarding K-1 distributions, 1040, schedule C, 1120, 1120s. Are you considering domiciling a Corporation in a low tax state? I can review the benefits and misinformation that exists.

Experience

I have been in the business of assisting business owners in reducing their taxes and liability since 1986.

Organizations
National Small Business Owners Association.
Publications
Contributing author to "The Corporate Standard Newsletter".


Publications
Contributing author to "The Corporate Standard Newsletter".
Ezinearticles.com articlesbase.com

Education/Credentials
I have been in the business of assisting business owners in reducing their taxes and liability since 1986.

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