IRS FAQ's Regarding Business Entites
- christian590
- Feb 11, 2015
- 3 min read
IRS FAQ's REGARDING BUSINESS ENTITIES
Can a husband and wife run a business as a sole proprietor or do they need to be a partnership?
It is possible for either the husband or the wife to be the owner of the sole proprietor business. When only one spouse is the owner, the other spouse can work in the business as an employee. If the spouses intend to carry on the business together and share in the profits and losses, then they have formed a partnership.
Are partners considered employess of a partnership or are they self-employed?
Partners are considered to be self-employed. If you are a member of a partnership that carries on a trade or business, your distributive share of its income or loss from that trade or business is net earnings from self-employment. Limited partners are subject to self-employment tax only on guaranteed payments, such as salary and professional fees for services rendered.
I am the sole owner of a limited liability company (LLC.) It has no employees. Do I need a seperate Federal Tax ID number for the LLC?
No, you will not need a seperate Federal Tax ID number for the LLC if you are the sole owner of the LLC and the LLC has no employees. If you are the sole owner of the LLC and the LLC has employees, you will need a seperate Federal Tax ID number, if you choose to have the LLC report and pay employment taxes with respect to employees of the LLC. If you are not the sole owner of the LLC, you will need a seperate Federal Tax number for the LLC.
For IRS purposes, how do I classify an LLC?
An 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 is personally liable for its debts. An LLC may be classified for Federal income tax purposes as if it were a sole proprietorship (referred to as an entity to be disregarded as seperate from its owner), a partnership or a corporation. If the LLC has only one owner, it will automatically be treated as if it were a sole proprietorship, unless an election is made to be treated as a corporation. If the LLC has two or more owners, it will automatically be considered to be a partnership unless an election is made to be treated as a corporation. If the LLC does not elect its classification, a default classification of partnership (multi-member LLC) or disregarded entity (taxed as if it were a sole proprietorship) will apply.
Must a partnership or corporation file a tax form even though it had no income for the year?
A domestic partnership must file an income tax form unless neither receives gross income nor pays or incurs any amount treated as a deduction or credit for federal tax purposes. A domestic corporation must file an income tax form whether it has taxable income or not.
What are the plain English definitions for the following: (1) a closely held corporation and (2) a personal holding corporation?
A closely held corporation is a corporation that, in the last half of the tax year, has more than 50% of the value of its outstanding stock owned (directly or indirectly) by five or fewer individuals. Generally, closely held corporations are subject to additional limitations in the tax treatment of items such as passive activity losses, at-risk rules, and compensation paid to a corporate officer(s).
A corporation is a personal holding company if both of the following requirements are met:
1. Income Test. At least 60% of the corporation's adjusted ordinary gross income for the tax year is from dividends, interest, rent, and royalties.
2. Stock Ownership Requirement. At any time during the first half of the tax year, more than 50% in value of the corporation's outstanding stock is owned, directly or indirectly, by five or fewer individuals.
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