LLC''s: Tax Issues From A to Z
Webinar Details $219
- Webinar Length: 100 Minutes
- Guest Speaker: Chuck Borek
- Topic: Taxation and Accounting
- Credit: CPE 2.0, ATATX 1.5
The limited liability company is perhaps the most revolutionary business organization to be developer in the past 500 years. A combination of corporate and partnership concepts, this unique organizational structure has presented more than its share of tax complications. In this course we will explore some of the trickier aspects of LLC taxation.
Topics covered will include:
- How and when an LLC can elect to be an S corporation
- The unique status of the single-member LLC
- Tax consequences of contributions and distributions
- The difference between allocations and distributions
- Traps for the unwary, like the disguised sales rules
- Employment taxes and LLC members
- Allocations 00:03:40
- Basic Allocation Concept 00:04:42
- The 704(b) Safe Harbor 00:08:36
- Layered and Waterfall Allocations 00:14:46
- Targeted Allocations 00:15:30
- Basis Adjustments 00:17:04
- 743(b) Adjustments 00:17:14
- 743(b) Adjustments Cont’d 00:18:11
- 743(b) Adjustments Cont’d 00:19:58
- 743(b) Adjustments Cont’d 00:20:06
- 743(b) Adjustments Cont’d 00:21:39
- Contributions 00:23:44
- § 704(a) General Rule 00:23:55
- § 704(a) General Rule Cont’d 00:24:03
- But 00:24:20
- §704(b) Substantial Economic Effect 00:24:23
- §704(b) Substantial Economic Effect Con’d 00:24:30
- Property Exchanges 00:25:45
- Distributions 00:27:58
- Distributions in General 00:28:11
- Allocations vs. Distributions 00:32:50
- State Law Restrictions 00:33:23
- Tax Distributions 00:33:55
- Entity Classification 00:35:55
- Entity Classification for LLCs 00:36:01
- Fringe Benefits 00:38:34
- Fringe Benefits - LLC 00:38:49
- Taxable Fringe Benefitsfor LLC Members 00:39:50
- Tax-Free Fringe Benefitsfor LLC Members 00:41:11
- Guaranteed Payment 00:42:10
- Guaranteed Payments 00:42:20
- Hot Assets 00:43:24
- Hot Assets (751 Assets) 00:44:46
- Imputed Under Payments 00:46:32
- Centralized Audits 00:46:51
- Join Venture 00:51:59
- Join Venture Cont’d 00:52:13
- K-1 Reporting 00:54:47
- Form 1065 Schedule K-1 - G-I2 00:55:05
- Form 1065 Schedule K-1 - J-K 00:57:00
- Form 1065 Schedule K-1 - L-N 00:59:04
- Loss Limitations 01:01:31
- Basis 01:01:54
- Multistate Tax 01:03:36
- Multistate Tax of LLC’s Income 01:03:51
- Non-Recourse Debt 01:06:10
- Minimum Sales Price 01:09:14
- Minimum Gain - Minimum Sales Price 01:10:14
- Minimum Gain - Minimum Gain 01:10:25
- Increases in Minimum Gain 01:10:58
- Increases in Minimum Gain = Nonrecourse Deductions - Increase in Minimum Gain 01:11:02
- Increases in Minimum Gain = Nonrecourse Deductions - Nonrecourse Deductions 01:11:
- Nonrecourse Deductions 01:12:26
- Minimum Gain Chargeback 01:12:38
- Operating Agreement 01:14:57
- Purposes of Operating Agreement 01:15:02
- Profits Only Partner 01:18:06
- Sol Diamond 01:18:26
- Qualified Business Income Deduction 01:24:44
- The 199A Deduction in General 01:25:24
- Overall Limitation 01:26:21
- Remedial Allocation 01:28:08
- Code Section 704(c)(1)(A) 01:29:09
- Accomplishing Purpose of §704(c)(1)(A) 01:29:09
- Reasonable Allocation Methods 01:29:29
- Self-Employment Tax 01:31:52
- Tax Items 01:31:58
- Tax Shelter 01:33:35
- Tax Shelter Definition 01:33:38
- Underpayment 01:34:28
- Tax Penalties 01:34:34
- Valuation Adjustments 01:36:36
- Section 704(b) Revaluations 01:36:43
- Revaluation Example - Partnership Balance Sheet 01:36:55
- Revaluation Example - No Book Revaluation 01:37:31
- Revaluation Example - Re-Valued Land 01:38:12
- Wages and W-2s 01:39:04
- Tax Items 01:39:09
- Xiting An LLC 01:39:29
- Liquidating Distributions 01:39:47
- Year For Reporting 01:40:39
- Subchapter K Required Tax Year 01:40:56
- Zero Cap Gains Rate 01:42:39
- Long-Term Capital Gains Rates - 2023 01:42:48
- Thank You! 01:43:25
- Presentation Closing 01:43:37
- 199A 01:25:10
- 754 Election 00:17:19
- Accounts Receivable (AR) 00:45:03
- Allocation 00:03:47, 00:06:44, 00:15:23, 00:24:46, 00:32:53, 00:35:56, 01:15:07, 01:28:16
- Asset 00:09:55, 00:22:22, 00:33:40, 00:45:05
- Audit 00: 00:46:51, 00:47:32, 00:48:40
- Balance Sheet (BS) 01:36:55
- Capital Gain 01:42:44
- C Corporation 00:39:13, 0:45:41
- Code Section 704(c)(1)(A) 01:28:38
- De Minimis 00:41:53
- Depreciation 00:45:09, 01:05:50, 01:11:30, 01:31:40
- Disregarded Entity 00:56:34
- Distribution 00:04:10, 00:32:53
- Fair Market Value (FMV) 00:25:54
- Form 1065 00:55:01
- Form W-2 01:39:07
- Fringe Benefits 00:38:50, 00:39:46
- Hot Assets 00:43:29, 00:46:22
- Imputed Underpayment (IU) 00:46:36, 00:49:59
- Inventory 00:45:01
- IRC Section 704(a) 00:04:57
- IRC Section 704(b) 00:08:36, 00:14:55, 00:57:18, 01:36:44
- IRC Section 743(b) Adjustment 00:17:14
- Join Venture 00:52:04
- Liability 00:33:44, 00:47:40
- Limited Liability Company (LLC) 00:01:35, 00:05:35, 00:10:46, 00:18:19, 00:25:09, 00:28:49, 00:36:05, 00:42:27, 00:47:26, 00:55:17, 01:01:40, 01:06:33, 01:25:36, 01:41:12
- Minimum Gain Chargeback 00:15:01, 01:12:34
- Nonrecourse Deduction 00:07:32
- Ordinary Income Assets 00:44:49, 01:21:17
- Passive Activity Loss (PAL) 01:03:29
- Profit 00:57:04, 01:18:09
- PTP - Publicly Traded Partnership 01:25:43
- Qualified Business Income (QBI) 01:24:46, 01:25:59
- Safe Harbor 00:07:23, 00:08:36, 00:14:55, 00:25:00, 00:57:18, 01:06:24
- Schedule K-1 00:32:55, 00:55:10, 01:34:18
- S Corporation 00:38:07, 00:45:34, 01:25:38
- Sole Proprietor 00:30:17, 00:39:27, 01:25:33, 01:32:03
- Subchapter K 00:03:51, 00:57:14, 01:39:22, 01:40:56
- Tax Shelter 01:35:36
- Wage 01:39:06
199A: 199A allows taxpayers to deduction up to 20% of qualified business income (QBI) from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust, or estate. The Sec. 199A deduction can be taken by individuals and by some estates and trusts
754 Election: Section 754 of the tax code allows partnerships to adjust their tax basis to prevent new partners from paying taxes on gains and losses they didn't benefit from.
Accounts Receivable (AR): The amount of money owed by customers or clients to a business after goods or services have been delivered and/or used.
Allocation: Allocation is the separation of profits by percentage for each member.
Asset: Property owned by a person or company, regarded as having value and available to meet debts, commitments or legacies.
Audit: A formal examination of an organization's or individual's accounts or financial situation
Balance Sheet (BS): A financial report that summarizes a company's assets (what it owns), liabilities (what it owes) and owner or shareholder equity at a given time.
C Corporation: A C corporation, under United States federal income tax law, refers to any corporation that is taxed separately from its owners. A C corporation is distinguished from an S corporation, which generally is not taxed separately. Most major companies are treated as C corporations for U.S. federal income tax purposes.
Capital Gain: Capital gain is an economic concept defined as the profit earned on the sale of an asset that has increased in value over the holding period. An asset may include tangible property, a car, a business, or intangible property such as shares.
Code Section 704(c)(1)(A): Income, gain, loss, and deduction with respect to property contributed to the partnership by a partner shall be shared among the partners so as to take account of the variation between the basis of the property to the partnership and its fair market value at the time of contribution.
De Minimis: Too trivial or minor to merit consideration.
Depreciation: A reduction in the value of an asset with the passage of time, due in particular to wear and tear.
Disregarded Entity: A disregarded entity refers to a business entity with one owner that is not recognized for tax purposes as an entity separate from its owner. A single-member LLC ( “SMLLC”), for example, is considered to be a disregarded entity. (www.pntax.com)
Distribution: Distribution refers to the members actually receiving the money.
Fair Market Value (FMV): The term fair market value is used throughout the Internal Revenue Code among other federal statutory laws in the USA including Bankruptcy, many state laws, and several regulatory bodies. In litigation in many jurisdictions in the United States, the fair market value is determined at a hearing.
Form 1065 : A partnership prepares a K-1 to get a sense of what each partner's share of the returns is, based on the amount of capital he has in the partnership. The financial information posted to each partner's Schedule K-1 is sent to the IRS along with Form 1065.
Form W-2: Form W-2 is an Internal Revenue Service tax form used in the United States to report wages paid to employees and the taxes withheld from them. Employers must complete a Form W-2 for each employee to whom they pay a salary, wage, or other compensation as part of the employment relationship. - Wikipedia (https://en.wikipedia.org/)
Fringe Benefits: An extra benefit supplementing an employee's salary, for example, a company car, subsidized meals, health insurance, etc.
Hot Assets: Hot assets are business assets that have the potential of built in ordinary income. In other words, these are assets that would generate ordinary income if sold. The main two examples are inventory and accounts receivable.
IRC Section 704(a): A partner's distributive share of income, gain, loss, deduction, or credit shall, except as otherwise provided in this chapter, be determined by the partnership agreement.
IRC Section 704(b): Section 704(b) of the Internal Revenue Code provides that a partner's distributive share of income, gain, loss, deduction, or credit is determined in accordance with the partner's interest in the partnership if the partnership agreement does not provide as to the partner's distributive shares of these items, or the allocation to a partner of these items under the agreement does not have substantial economic effect.
IRC Section 743(b) Adjustment: The IRC §743(b) basis adjustment constitutes an adjustment to the basis of partnership property with respect to the transferee only; no adjustment is made to the common basis of partnership property.
Imputed Underpayment (IU): Under the BBA, the IRS generally assesses and collects any understatement of tax (called an imputed underpayment or IU) at the partnership level. Partnerships may request to modify the IU and may elect to push out the adjustments underlying the IU instead of paying.
Inventory: A company's inventory typically involves goods in three stages of production: raw goods, in-progress goods, and finished goods that are ready for sale. Inventory or stock refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilization.
Joint Venture: US GAAP currently treats certain transactions involving joint ventures differently from transactions involving other businesses and joint arrangements. There is no authoritative guidance related to the accounting applied by a joint venture when recognizing noncash assets contributed at its formation.
Liability: In financial accounting, a liability is defined as the future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.
Limited Liability Company (LLC): An LLC is a corporate structure where members cannot be held accountable for the company’s debts or liabilities. This can shield business owners from losing their entire life savings if, for example, someone were to sue the company. Can be a single member (much like a sole proprietor) or a multi-member. It shares certain traits of both corporations as well as partnerships or sole proprietorships. It is not a corporation.
Minimum Gain Chargeback: The minimum gain chargeback requirement is a provision in the partnership agreement mandating an allocation to each partner of items of partnership income or gain for the year that are equal to that partner's share of any net decrease in partnership minimum gain.
Nonrecourse Deduction: Non-Recourse Deductions means any and all items of loss, deduction or expenditure (including any expenditure described in Section 705(a)(2)(B) of the Code), Simulated Depletion or Simulated Loss that, in accordance with the principles of Treasury Regulation Section 1.704-2(b), are attributable to a Non-Recourse Liability.
Ordinary Income Assets: Ordinary Income Assets means assets to the extent that any gain on the sale of such assets would be ordinary income rather than capital gain for federal income Tax purposes.
PTP - Publicly Traded Partnership: A publicly traded partnership (PTP) is a business organization owned by two or more co-owners whose shares are regularly traded on an established securities market. A publicly traded partnership is a type of limited partnership managed by two or more general partners that can be individuals, corporations or other partnerships, and that is capitalized by limited partners who provide capital but have no management role in the partnership.
Passive Activity Loss (PAL): Passive activity loss rules are a set of tax regulations that prohibit taxpayers from using passive losses to offset earned or ordinary income. The passive activity loss rules generally limit the ability of taxpayers to shelter salaries, wages, and interest income with deductions and credits from passive activities, that is, trade or business activities in which the taxpayer does not materially participate.
Profit: A financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something.
Qualified Business Income (QBI) : QBI is the net amount of qualified items of income, gain, deduction and loss from any qualified trade or business, including income from partnerships, S corporations, sole proprietorships, and certain trusts.
S Corporation: An S corporation, for United States federal income tax, is a closely held corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. In general, S corporations do not pay any income taxes.
Safe Harbor: A safe harbor is a provision of a statute or a regulation that specifies that certain conduct will be deemed not to violate a given rule. It is usually found in connection with a vaguer, overall standard. Under the safe harbor, a “rental real estate enterprise” is treated as a trade or business for purposes of Sec. 199A if at least 250 hours of services are performed each tax year with respect to the enterprise. ... The safe harbor requires that separate books and records be maintained for the rental real estate enterprise.
Schedule K-1: The Schedule K-1 is an Internal Revenue Service (IRS) tax form issued annually for an investment in partnership interests. The purpose of the Schedule K-1 is to report each partner's share of the partnership's earnings, losses, deductions, and credits.
Sole Proprietor: A business that legally has no separate existence from its owner. The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts.
Subchapter K: Subchapter K of the Internal Revenue Code of 1954 (sections 701 through 761)1 contains the statutory rules for the taxation of partners and partnerships. Anyone who has tried to gain a working knowledge of these sections will readily agree that one of the most important questions about subchapter K is how one avoids it.
Tax Shelter: A tax shelter is any legal strategy you employ to reduce the amount of income taxes you owe. After receiving much attention in the news in recent years, the term "tax shelter" has a negative connotation relating to deceptive and illegal schemes to evade income tax.
Wage: A fixed regular payment, typically paid on a daily or weekly basis, made by an employer to an employee, especially to a manual or unskilled worker.