Legal Question in Tax Law in California
How to report rental income for my LLC
I understand that Schedule E is for rental income and expenses. Schedule C is for business income. My question is what is the most appropriate way to report my rental income and business expenses given the following organizational structure?
Last year my wife and I bought two residential homes for rent under our names. I set up a LLC in Nevada and then set up a sole proprietorship (dba) in California with the LLC as the owner of the business. The homes are leased under the name of the dba because they are in California.
The LLC has one manager (me) and one member (my wife). I believe IRS allows simplified reporting when the LLC has only one member. Do I need to pay self employment tax?
The resident agent of the LLC is in Nevada, but the dba's address is my home address. Can I still deduct part of my home mortgage/utility bills as business expense?
The rental income was not enough to cover all the business expenses and depreciation. So I have losses to report. Should I do only Schedule E or both Schedule C and E?
2 Answers from Attorneys
Re: How to report rental income for my LLC
An LLC doing business in California will need to be registered as a foreign LLC in California with the Secretary of State and file California tax returns (and pay the minimum franchise tax), even if the IRS disregards the LLC for income tax purposes.
If you took title to the properties in your own names, then the properties are not in the LLC and the whole exercise of setting up the LLC was futile. In that case you will use Schedule E and will also need to file a California Form 540NR for the rental activities in California.
Re: How to report rental income for my LLC
It sounds like you went to a lot of time and effort to accomplish something that cannot be accomplished. You should spend less time listening to the "protect your asset" gurus, and talk to an attorney about the proper way to set up business organizations.
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