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FAQ

Is the Schedule K-1 the same as the Form 1065?
Form 1065 is an information return filed by partnerships in the US. Partnerships are not taxed on the income that the partnership earns; the tax liability on the partnership income is passed through the partnership to the individual partners.When Form 1065 is filed, the partnership reports each partner's share of the partnership income and deductions and credits that are passed through to them on Schedule K-1. Each partner gets a copy of the applicable Schedule K-1 and uses the information from that form on their own individual tax returns. So Schedule K-1 is a part of Form 1065, generated from the information that the partnership reports on Form 1065.
I just incorporated an LLC (september 2013) and we have not sell a single item yet (no income/revenue). Therefore, do the LLC need to declare, file or pay taxes?
The answer is "it depends". Reasons why you do need to file a tax return:You have business expenses for 2013 that may be deductible and wish to benefit from the tax deduction.You elected to have your LLC taxed as a corporation C or S.Reasons why you do not need to file a tax return:You truly have no revenue in 2013 and have no expenses or are willing to forego deduction of any expenses for tax purposes.NOTE the above is for US federal tax reporting, depending on what state your LLC is organized in, you probably do have to file some type of state return for your LLC, even if it is just filing an annual franchise report.
How can a company that has erroneously filed IRS Form 1065 comply with their requirement to file IRS Form 1120S, after having made guaranteed partners payments rather than officer salaries?
oh wow.  This is really messy.  Here are the steps I would go through:1.  File an amended form 1065 to indicate $0 activity.  Give all of the officers a corrected K-1.  They'll need it to file their amended returns.2.  File the proper form 1120S - expect inquiry letters from the IRS about this.  Be prepared with all of your documentation indicating that 1120S is the proper form to file.3.  File forms 941, 940, State Withholding and State Unemployment.  You'll need to "gross up" the officer payments.  For example, if Partner A received $80,000 in guaranteed payments, you'll need to actually file that as $86.626 to account for the $6,62. in Social Security and Medicare taxes that were withheld from the paychecks in order to reach $80,000.4.  Prepare W-2s for all of the officers.  They'll need these for their amended returns.5.  Expect to pay lots of penalties and interest on the 941 forms since they are now late.6.  Prepare to pay an accuracy related penalty, although you may be able to beg forgiveness on this one and get it abated.7.  Fire whoever made this error, unless it's your fault for not providing that person with the appropriate documentation.
Which tax filings apply if I pay myself, through my LLC, as a 1099 contractor?
The short answer - no.The long answer - there are other ways to accomplish your goals and some of it depends on how you're organized.LLCs can choose to file taxes as though they are a corporation (form 1120 or form 1120s) or a partnership (form 1065).  However, if you are a single member LLC, you cannot use a form 1065 - you must file schedule C on your personal form 1040.If you've chosen to file as a corporation, then you can pay yourself a small(ish) salary and take the rest of your income as dividends/shareholder distributions.  There are varying formulas that different CPAs recommend to their clients.  I tend to lean a bit on the conservative side and I recommend that my clients take approximately 50% of their profits as salary and the balance as distributions.  The salaries are subject to unemployment insurance, FICA taxes and worker's comp insurance calculations (although you can choose to exempt yourself from worker's comp), but the distributions are not.  There is an added need within a corporate structure to have "reasonable" salary.  So even if you do not follow a 50% split and choose something lower for salary, it still must be reasonable.  For example, a doctor who has $300,000 of corporate income may not pay him/herself a salary of $30,000.  The IRS will view that (rightfully) as an attempt to avoid payroll taxes and assess additional tax, penalties and interest accordingly.If you've chosen to file as  partnership or if you are a single member LLC, then you just write yourself a check for whatever amount you choose.  Paying a salary to an LLC member is not the proper way to be compensated.  You simply take whatever you like out of the company as an equity distribution.  ALL of your net profits are taxable for both parts of FICA (Self Employment Tax), but none of it is subject to unemployment insurance.  Regardless of which tax structure you've chosen - partnership, sole proprietorship or corporate, it is never proper to pay yourself as a subcontractor.  Amounts you pay yourself as a partnership or a sole proprietor are not deductible as an expense.  For a corporation, only amounts paid to you as salary are deductible.
What is the Tax Form 1065 K-1 used for?
This is intended as general information. It may not apply to your specific situation, and should not be taken as advice. State laws and the laws of other countries differ. I am not a tax professional. Consult a tax professional for reliable information.Partnerships are usually considered “pass-through” for tax purposes.A partnership can have income, deductions, capital gains, expenses, interest, etc, but they do not pay taxes. Instead, the partners report the information on their own personal tax returns. Everything is “passed through” to the partners.Schedule K-1 is used to inform the partners of what to report on their tax returns. For example, if a K-1 reported interest income in Box 5, the partner would need to report this on Schedule B of their own return, as if they had personally earned it.A note about the form names: Form 1065 is the form returned by the partnership to the IRS. Partners never see a Form 1065. But K-1 is sometimes called “K-1 (Form 1065)”. This is to distinguish it from other kinds of K-1s. For example, “K-1 (Form 1041)” is used for trusts instead of partnerships.
Can one LLC be used for 2 different types of businesses?
An LLc may be used for more than one type of business. For example, I do accounting work, engage, invest in other small businesses, and perform as a musician - all through my one LLC.However, if you need a bank loan, seek investors to buy into your business, or wish to limit liabilities to one business, you need to set up separate LLCs.Min other words, you anould account for each separately. You should also report them separately for tax purposes. LLCs are chameleons. While they are all set up as LLCs, they can be disregarded entities - that is - sole proprietorships that report their earnings for tax purposes on Schedule C of the taxpayer’s From 1040. An LLC can be a partnership and report via Form 1065. It can be an S Corporation and report via Form 1120S. Finally, it can be a C Corporation and report on Form 1120, although that is not typical. They may also be trusts or non-profit entities, although those are not typical, either.You should consult a CPA or an attorney, when forming a business, as there are legal and tax considerations to consider.
How do I pay taxes on my handyman business?
Taxes on handyman business can be paid depending on if you are working as unincorporated entity i.e. sole proprietorship or as incorporated entity. In case you are a sole proprietor, you can summarize your total income earned from that business and expenses incurred to earn that income for example expenses like tools, travel, gas, meals, licenses and taxes, insurance, rent etc. The summary of income and expenses will be filed in your personal tax return Form 1040 under Schedule C Profit or Loss from Business. In case, you are operating as incorporated entity, separate return will be filed depending upon type of entity whether it’s partnership (Form 1065) or corporation Form 1120/1120 S.
How do I deal with capital and divide profits in a partnerships?
I'll try to explain this as if you've never taken an accounting class.  There are three basic financial statements.Income statement.  This measures the revenue and expenses for a given period of time.  If you have $100 in revenue and $75 in expenses, your profit is $25.Balance sheet.  This is a snapshot of the financial strength of your business as of certain point in time.  Typically financial statements are prepared on a monthly basis, so the snapshot is typically at the end of the month.  This statement measures three basic areas; assets (cash, inventory, other things of value), liabilities (what your business owes to others, i.e. unpaid bills) an equity (the net worth of your company).  The equity of your business is the amount of capital contributed, in your example, $1 million.  Equity increases as you make profits and decreases if you incur losses.  It also decreased to the extent that the owners draw profits from the companies (for non salaried reasons).Cash flow.  This is a reconciliation of your net income to the cash on hand at the end of the month.  It answers questions like, "If I made $100,000, why did my cash increase by only $5,000?  Where did it all go?"Let's start with your first question.How does a partnership divide profits?The distribution of profits to its shareholders (owners) are typically based upon their ownership in the company.  In your example, each person contributed $500K to start the company.  Since the amounts are equal, you are 50/50 partners, with each person entitled to 50% of the profit distribution.There are no hard and fast rules on distributions, with regard to how much and how often.   If you just made $100K in a given month, you could immediately distribute $50K to each partner, but there may be reasons why you might not want to do so.  Those funds may be needed to invest in other assets to expand or build your business or it may be needed to pay existing liabilities or debt repayments.  When distributions are made, they are recorded as a reduction to your equity in the opposite way that profits are an increase to equity.  From a balance sheet perspective, if you distribute the exact amount you earn, your equity will not change.It is worth noting that accounting for  distribution of profits differs from compensation, although the effect is the same (i.e. money in your pocket).  Compensation is a salary that is paid to both you and your partner, regardless of whether a profit (or loss) occurs.  In essence, you are an employee of the company.  Like all employees, monies paid for payroll expenses are recorded as an operating expense and appears on the income statement, rather than balance sheet.I hope this provides a sufficient overview, but if you have any questions, feel free to ask in the comments section of this answer.
How do my taxes work, now that I have a side business in addition to my fulltime job?
An LLC with more than one owner is treated as a partnership, unless the LLC chooses to be taxed as a corporation. I don't see any particular reason for you to choose the latter option.As a partnership, the LLC files Form 1065 to report its income and expenses. The $40K of income would be reduced by any deductible expenses that the business incurred - disposable supplies such as printer ink, paper, etc, plus the depreciation on the equipment that you purchased for the business, and so forth. As a partnership, the LLC itself does not pay taxes on the net income from the business; that net income flows through to the partners.You will receive a Schedule K from the partnership, which will show the information that you must report on your own tax return. The Schedule K instructions tell you where the items reported on the schedule flow through to your own return. Generally, assuming that this is your only business, the amount of income on which you will be personally taxed is 50% of the partnership's net business income - so if the net business income for the partnership after deductions is, say, $30K, you will be taxed on $15K. On your personal return, the partnership information shows up on Schedule E, page 2 and on Form 1040, line 17. Some things are stated separately - section 179 deductions and non-deductible expenses such as 50% of meals and entertainment, for example - because the tax implications of those items depend on the partner's specific situation and may be treated differently depending on what else the partner has on his personal return.If you are a general partner (and I presume that both you and Diego are from the facts presented), then you will also have to pay self-employment tax on the net income from the partnership.Take a look at IRS Publication 541, Partnerships, http://www.irs.gov/publications/..., for more information.