Legal Question in Tax Law in New Jersey

Re: Tax traps in LLC.

Single member LLC's have been permitted in New Jersey since 1998. It sounds like you want to establish a single member LLC which is a "disregarded entity" for tax purposes. If the business will primarily be performed in NJ, DO NOT setup a Delaware LLC!

For free information on choice of entity selection, please see http://www.taxesq.com/choice.html

Re: Tax traps in LLC.

I have done placeholder LLC membership before where the membership interests reflect multiple members but the economic interests are 100% in one owner. Never had this challenged, but there are doubts in my mind that it would ultimately withstand IRS scrutiny -- I have only used this device where the economic owner is a non-US party and there are other considerations involved and no other way to solve the issues. Easier path is to form the entity in Delaware or another state that allows single-member LLCs, which are recognized as valid even in states where two or more members are required to form a "domestic" LLC.

Re: Tax traps in LLC.

Single member LLCs can be formed. However, the facts you relate and the questions you asked (and raised) indicate you are in serious need of professional advice. I suggest you consult your attorney/tax adviser at your earliest convenience or call me at 973-731-5110

Re: Tax traps in LLC.

You are incorrect about NJ requiring that a LLC have more than 1 member. NJ allows a one person LLC. You just do not file a federal Form 1065 (Partnership), but merely show the LLC income and expenses on your personal Schedule "C". If you want the other persons as members, they need to have at least a 1% interest each, you file Form 1065 and they get 1% each of profit or loss. If they are affiliated with the LLC, as employees, consultants or independent contractors, their business expenses related to the LLC can be deducted whether or not they are members. If you retained thir services, even as a one person LLC, their travel costs can be deducted when reimbursed. Any further questions, contact me at 973-377-3313.