Form 1065 LLC Partnership Tax Prep
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Form 1065 LLC Partnership Complex Business Tax Prep
If you are involved with a Partnership LLC in the Phoenix or Scottsdale area, you need to be aware that the tax aspects of a partnership are the least understood & most complex tax issue facing anyone considering use of the partnership structure.
The preparation of any type of business tax return appears easy to the inexperienced business tax preparer in Phoenix or Scottsdale. However, there are many complex issues involved with any business tax return. Partnerships are perhaps the most complex. Make a mistake and it will cost you dearly.
There are several types or forms of partnerships provided for by state laws, including Phoenix, Scottsdale, and the entire state of Arizona. These include general partnerships, limited partnerships, limited liability companies (“LLCs”), and limited liability partnerships (“LLPs”). Each form of partnership has its own advantages and disadvantages. These apply regardless of your location, whether it's Phoenix, Scottsdale, or anywhere in America. For this discussion, all that matters is that the business entity is recognized for tax purposes as a partnership.
The big disadvantage of a general partnership, which outweighs any advantages, is that you are personally responsible for your partner's liabilities related to the business. One partner can take actions - such as signing a contract - that legally binds the partnership entity, even if all the partners were not consulted. Each partner is also personally liable for injuries caused by one partner on company business. In other words, if one partner causes an accident while making a delivery with the company van, all partnership assets, as well as each partner's personal assets, are at risk. Of course, a partnership can protect itself against such risks by carrying the proper insurance.
A limited partnership must have one or more general partners, who have the same responsibilities and liability restrictions as they would in a general partnership. In addition, there are one or more "limited" partners, typically investors not involved in the day-to-day activities of the company.
These limited partners are not personally liable for debts of the partnership, and they get the same tax advantages as a general partner. However, they do have significant restrictions. They can not, for instance, be involved in the management of the company (with few exceptions). If they are, they may become personally liable for the partnership's debts.
A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Unlike a partnership, none of the members of an LLC are personally liable for its debts.
Like shareholders of a corporation, all LLC owners are protected from personal liability for business debts and claims. This means that if the business itself can't pay a creditor -- such as a supplier, a lender, or a landlord -- the creditor cannot legally come after an LLC member's house, car, or other personal possessions. Because only LLC assets are used to pay off business debts, LLC owners stand to lose only the money that they've invested in the LLC. This feature is often called "limited liability."
There are exceptions to Limited Liability. While LLC owners enjoy limited personal liability for many of their business transactions, this protection is not absolute. This drawback is not unique to LLCs, however -- the same exceptions apply to corporations. An LLC owner can be held personally liable if he or she:
This last exception is the most important. If owners don't treat the LLC as a separate business, a court might decide that the LLC doesn't really exist and find that its owners are really doing business as individuals who are personally liable for their acts. This is affectionately known to attorneys as "Piercing the Corporate Veil." To keep this from happening, make sure you and your co-owners:
Common Characteristics of All LLCs
An LLC may be classified for federal income tax purposes as either a partnership, a C or S Corporation, or an entity disregarded as an entity separate from its owner (Single Member LLC) by applying the rules in Regulations section 301.7701-3. See Form 8832 and section 301.7701-3 of the regulations for more details.
A Partnership LLC is not a taxable entity. A Partnership LLC is a reporting entity.
LLC Members or Partners report their share of income or loss on their personal tax returns, utilizing Schedules K-1 produced by the LLC or Partnership tax return.
If you are a member/partner of a Scottsdale or Phoenix partnership, you must file IRS Form 1065 annually to report revenue & expenses. Form 1065 must be filed by the 15th day of the fourth month following the end of the partnership's year end. Partnerships can request an automatic five-month extension by filing Form 7004 by the April 15th due date of Form 1065.
The Member/Partners are assessed tax at their individual income tax rates &, unlike S Corps, normally pay self-employment/payroll tax on their personal tax returns on their share of the LLC or Partnership's net profit.
The IRS offers Information on the Taxation of LLCs in Publication 3402.
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