You are here:

Tax Planning/Individual Tax return.


QUESTION: My question is whether an individual be permitted to offset  the losses from a 99% owned LLC(elected to tax as Partnership)with the profits from sole proprietor business.

ANSWER: Shalini:

The answer to your questions depends on a variety of factors.

If your interest in the partnership activity is one in which you actively participate, then you can offset INCOME from that activity against any self-employment activity.

If you have a passive activity in your partnership, you can only take the losses to the extent of your "tax basis."

However, in either case, you will still likely owe self-employment taxes on the net income from your self-employment activity.

I hope this helps answer your question.

---------- FOLLOW-UP ----------

QUESTION: If there is passive income from sole proprietorship, is it still going to be taxed for self employment activity. I will really appreciate if you can give the reference of two cases and the IR code section to support the answers.
Thank you

You didn't tell me that the income from self-employment was one in which there was no material participation.  

You will have to consult the following publications:

According to this publication -> you would still owe SE tax because you have net income on Schedule C, regardless of whether you materially participated or not.  

Tax Planning

All Answers

Answers by Expert:

Ask Experts




As an Enrolled Agent, I am fully capable of providing tax advice as it relates to personal and business income taxes. Enrolled Agents are the only Federally licensed tax practitioners and are admitted to practice before all administrative functions of the IRS. My specialty is working with small business owners who file Schedule "C" and helping them to structure their business in such a way as to maximize as many tax advantages as possible. I also enjoy working with individuals who have both routine as well as complex tax situations. I prefer to concentrate on individuals and small business tax planning.


I have a 25 year background in financial services including tax, bookkeeping, insurance, real estate and securities. I was previously the Chief Financial Officer of a local and national franchise organization. I am currently semi-retired, but used to own (in partnership with another EA) an individual and small business financial engineering firm where I work with nearly 2,500 individuals and small business owners in nearly every state and almost every continent, assisting them in all aspects of their tax and financial well-being. I have prepared or reviewed more than 8,000 tax returns in my career.

National Association of Tax Professionals


Enrolled Agent, Admitted to Practice Before the IRS, Accredited Tax Preparer, Fellow of National Tax Practice Institute, Certified QuickBooks ProAdvisor (1999-2011), Sleeter Group Certified QuickBooks Consultant, Life & Disability Insurance Agent License (California, Texas, Maine), Real Estate Agent License (California); Many years of continuing education in all these fields.

©2017 All rights reserved.