Legal Question in Tax Law in New York

Re: LLC file as Corporation to save $$?

In response to your question. There are many options for start up entities.

However, I must ask, why incur the higher costs of establishing an LLC and then elect to be taxed as a corporation anyway. There are many options when starting a new business. S Corp, LLC, C Corp, LLC taxed as C Corp, etc., etc.

I would need to hear more about the facts in your specific case, however, I can say that most often, the LLC is the entity of choice and it poses many tax advantages which outweigh the cost of any higher annual filing fee.

1) Specific Allocations of tax benefits (adds flexibility)

2) Basis allowances for debt assumed on behalf of the entity (reduces capital gain when you sell your interest)

3) The flow through of losses to the individual partners (which C Corporations do not allow)

And many other reasons as well.

In addition, I would address the issue of your entity receiving tax deductible contributions. Just because the contribution was made for a tax-exempt purpose would not qualify your entity to receive them free of tax. Unless you have registered as a tax-exempt organization, the entity paying you the money would not get a deduction for the payment to you.

Please feel free to contact me if you would like to discuss these matters further.

Best of luck with your new business. Let me know if I can be of help to you.

Best Regards,

Eric L. Morgenthal, Esq., CPA

(631) 265-8000

Re: LLC file as Corporation to save $$?

I CONCUR WITH ERIC ON YOUR LIMITED FACTS PRESENTED. FOR THE MOST PART, THE LLC FORMAT GIVES YOU THE MOST FELXIBILITY, WHICH MAY HAVE MORE BENEFIT, IF NOT CURRENTLY THEN WHEN YOU START TO MAKE PROFITS, DESPITE THE SEEMINGLY HIGHER COSTS. AS TO YOUR CURRENT TAX QUESTIONS, I DO NOT BELIEVE YOU COULD ELECT "S'" STATUS. AS YOU ARE LATE TO FILE FOR IT, AS THEIR ARE SPECIFIC TIME PERIODS THAT LIMIT WHEN THE ELECTION CAN BE MADE AND FOR WHAT PERIOD (TAX YEAR). YOU WOULD FILE FORM 1065 (PARTERNSHIP RETURN FOR 2004), WHICH ASSURES THE PASS-THROUGH OF PROFITS AND LOSSES TO THE PERSONAL RETURNS OF THE MEMBERS. YOUR ORGANIZATIONAL COSTS CAN BE DEDUCTED FOR 2004. AS TO THE PERSONAL EXPENSES, I SUGGEST THAT EACH MEMBER FILE A SCHEDULE "C" TO THEIR PERSONAL RETURNS, INDICATING THEY ARE "CONSULTANTS" TO THE BUSINESS, REPORT NO INCOME, BUT TAKE THE DEDUCTIONS FOR THE SUPPLIES AND OTHER COSTS THEY INCURRED. THIS SHOULD PRODUCE A LOSS THAT CAN BE APPLIED AGAINST OTHER INCOME. ALTERNATIVELY, IF THE COSTS WERE APPROXIMATELY EQUAL, IS TO REPORT THEM ON THE FORM 1065 AND PASS THEM THROUGH AS PART OF THE 2004 OPERATION OF THE LLC. THE NET EFFECT SHOULD BE THE SAME. I AM A LITTLE CONFUSED ABOUT THE $1,000 ITEM AND AM NOT EXPRESSING ANY OPINION ON HOW THAT SHOULD BE TREATED.