Schedule C Single Member LLC
Single Member LLC (SM LLC) Schedule C Sole Proprietor Tax Prep on Your Personal Individual Tax Return. HK CPAs on 83rd Ave Between Bell Rd & Thunderbird. Contact Us at (480) 596-6499.
Experienced Small Business Sole Proprietor Schedule C LLC Tax Prep CPAs Renee Kolodziej and James Howe.
LLC Liability Issues
A SM LLC on Schedule C does have a legal distinction between the owner & the business. Therefore, the LLC entity itself is liable for all the debts and obligations of the business. That means your personal assets are, theoretically, not liable for all the debts & obligations of the business.
If you are a professional service provider or consultant & what you are selling is a service, you will likely be liable for your actions anyway. If you form an LLC, your personal signature & guaranty will likely be required when entering into a contractual obligation or debt, like signing a lease or borrowing money from the bank. So it's very possible that the limited liabilty won’t save you from being personally liable.
A SM LLC separates your personal liabilities from those of the business, & vice versa in most occasions, except those listed above. A SM LLC also offers charging order protection, which means that a creditor cannot take the LLC as an asset, but can only get to the profits of the LLC.
If you form a LLC later on, you will face additional expense in transferring assets, contracts, & other items to the LLC. You will have to obtain a new tax identification number, form new bank accounts, & get insurance in the name of the LLC.
Forming a LLC legal entity at the outset of your business, if properly formed, is the best answer.
Otherwise, a SM LLC is treated exactly as a Schedule C Sole Proprietor is treated for tax purposes.
The IRS offers Information on the Taxation of SM LLCs on Schedule C in Publication 3402.
Tax Prep of LLC Schedule C
A Sole Proprietor taxed on Schedule C is a business owned by one person. It has no legal distinction from the owner. It usually requires no governmental filing other than a fictitious business name statement ("DBA") if the owner is doing business in any name other than a personal name. Schedule C is where Sole Proprietorship Income & Expenses are filed on your personal return.
A sole proprietorship is probably the most common form of business because it is simple to start. It avoids the operating expenses required for other legal entities such as corporations & limited liability companies (other than a SM LLC).
There is nothing required to be a sole proprietor. If you are in business, & do nothing further, you are a sole proprietorship. Your employer identification number is your social security number. A sole proprietorship does not separate the business assets from your personal assets, & therefore, no liability protection is offered.
Because there is no legal distinction between the owner & the business, a sole proprietor is personally liable for all the debts & obligations of the business.
Qualified Joint Venture Schedule C
The IRS recognizes that a husband-wife business is unique, so they have made an exception for this type of business, to make it easier for the husband & wife to file tax returns without having to file a complicated partnership tax return. The IRS calls this a "Qualified Joint Venture (QJV)."
A qualified joint venture (QJV) is not a business legal type. It is a concept developed by the IRS to allow husband-wife partnerships that meet certain requirements to file their business taxes as sole proprietorship, using two Schedule C forms.
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