Can married taxpayers report LLC on schedule C?

Husband and wife bought an exisiting retail/wholesale business with the proceeds from an home equity loan (Loan amount $300,000) and formed a LLC in the state of NJ. How
can these taxpayers: At very least deduct the full amount of interest expense on the loan given that the loan is in excess of the 100,000 limit. and proceeds were not for investment property but a trade or business. Thus reducing Federal income taxes. or
Report the LLC on Schedule C (husband and wife only LLC menbers) and as a disreguarded entity take the full amount of any interest paid on this loan and thus reduce Federal income taxes, SE taxes and NJ Gross Income taxes. In truth only the husband will be involved in this business. What possible reasons could the attorney have had by not forming a single member LLC? << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ------------------------------------------------------- >>
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look at the interest tracing rules for guidance on deducting the interest expense

just saw something in recent tax legislation that would allow a h & w to use a sch c instead of a 1065 haven't read thru the new laws just yet, so not sure how it might work in your case ___________________________________ <<< Benjamin Yazersky, CPA [NJ & NY] >>> -----> real address on hobokeni or hobokenx <-----
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Ok you put me on the correct track. I assume you are talking about the Taxpayer Protection Act of 2007. Now the big question is does it apply to Husband-Wife LLCs? see below. I. TAXPAYER RIGHTS
A. Family Business Tax Simplification
Present Law Under present law, a partnership is defined to include a syndicate, group, pool, joint venture, or other unincorporated organization through or by means of which any business, financial operation, or venture is carried on, and which is not a trust or estate or a corporation (sec. 7701(a)(2)).2 A partnership is treated as a pass-through entity, and income earned by the partnership, whether distributed or not, is taxed to the partners. The income of a partnership and its partners is determined under subchapter K of the Code. An election not to be subject to the rules of subchapter K is provided for certain partnerships that meet specified criteria (i.e., the partnership is for investment purposes only, is for the joint production, extraction, or use of property, but not for selling services or property produced or extracted, or is used by securities dealers for short periods to underwrite, sell or distribute securities). Otherwise, the rules of subchapter K apply to a venture that is treated as a partnership for Federal tax purposes. In the case of an individual with self-employment income, the income subject to selfemployment tax is the net earnings from self-employment (sec. 1402(a)). Net earnings from self-employment is the gross income derived by an individual from any trade or business carried on by the individual, less the deductions attributable to the trade or business that are allowed under the self-employment tax rules. If the individual is a partner in a partnership, the net earnings from self-employment generally include his or her distributive share (whether or not distributed) of income or loss from any trade or business carried on by the partnership. Description of Proposal The proposal generally permits a qualified joint venture whose only members are a husband and wife filing a joint return not to be treated as a partnership. A qualified joint venture is a joint venture involving the conduct of a trade or business, if (1) the only members of the joint venture are a husband and wife, (2) both spouses materially participate in the trade or business, and (3) both spouses elect to have the proposal apply. Under the proposal, a qualified joint venture conducted by a husband and wife who file a joint return is not treated as a partnership for Federal income tax purposes. All items of income, gain, loss, deduction, and credit are divided between the spouses in accordance with their respective interests in the venture. Each spouse takes into account his or her respective share of these items as a sole proprietor. Thus, it is anticipated that each spouse would account for his or her respective share on the appropriate form, such as Schedule C. The proposal is not intended to change the determination under present law of whether an entity is a partnership for Federal income tax purposes (without regard to the election provided by the proposal). 2 Unless otherwise stated, all section references are to the Internal Revenue Code of 1986, are amended (the "Code").
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I can only assume that the interest expense which (in this case) can clearly be traced to the purchase of the new business would be reported on a Schedule E. Where on this form, if I am correct would it go and how would it be worded? Is there any chance the interest can also reduce the SE tax? << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ------------------------------------------------------- >>
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You have to look at the internal revenue code & the IRS regulations to determine how you are going to apply the interest expense. They require that you cross your t's & dot your i's carefully. ___________________________________ <<< Benjamin Yazersky, CPA [NJ & NY] >>> -----> real address on hobokeni or hobokenx <-----
<< ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ------------------------------------------------------- >>
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I can only assume that the interest expense which (in this case) can clearly be traced to the purchase of the new business would be reported on a Schedule E. Where on this form, if I am correct would it go and how would it be worded? Is there any chance the interest can also reduce the SE tax?

<< ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ------------------------------------------------------- >>
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Allan Martin wrote:

Perhaps the attorney was representing both spouses? Gotta be careful about those conflicts of interest. Before 2007, in a separate property state, husband-and-wife business is a partnership and cannot use a Schedule C. In principle, the security for a loan and the use of the loan proceeds are two separate things. If there is a very careful accounting of the separate loan proceeds, it should be possible to allocate the interest expense for personal residence mortgage and business loan. However without the benefit of reading other replies sitting in the queue, I will qualify my answer. -Mark Bole
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Mark, you say before 2007, can I assume that beginning in 2007 a husband-and-wife LLC in NJ can use a Schedule C? What is your source for this change? << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ------------------------------------------------------- >>
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Off the top of my head, retirement & estate planning. Solo 401(k)s come to mind. An LLC with eligible employees other than partners cannot create solo 401(k)s. They must use SEPs, 401(k)s, SIMPLEs, etc, etc... that may have higher costs or more prohibitive contribution limits. Having both of them as share holders also allows them to use cross- purchase buy/sell agreements to secure life insurance that can be deducted as a business expense and/or paid with pre-tax dollars from a pension plan. << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ------------------------------------------------------- >>
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Off the top of my head, retirement & estate planning. Solo 401(k)s come to mind. An LLC with eligible employees other than partners cannot create solo 401(k)s. They must use SEPs, 401(k)s, SIMPLEs, etc, etc... that may have higher costs or more prohibitive contribution limits. Having both of them as share holders also allows them to use cross- purchase buy/sell agreements to secure life insurance that can be deducted as a business expense and/or paid with pre-tax dollars from a pension plan. << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ------------------------------------------------------- >>
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