Tax Tips

Seven steps to take:

In the business world, change is inevitable. If members of your multi-member limited liability company (LLC) decide to part ways and sell their business shares to you, leaving you a single-member LLC disregarded entity, there are certain steps you’ll need to take and tax consequences you’ll want to consider to properly handle the transition.

To properly change from a multi-member LLC to a single-member LLC, you’ll need to follow these steps:

  1. Obtain a sales agreement.
  2. Determine the sale date.
  3. Obtain financials through the sale date.
  4. Have the final Form 1065 prepared.
  5. If hot assets are present, have the Form 8308 prepared.
  6. Attach statements.
  7. Provide the final Schedule K-1.

Once all other members have left the LLC, be sure to file a new tax election stating that you’d like to be taxed individually. You’ll no longer be taxed as a partnership and will instead be taxed similarly to how a sole proprietorship is taxed. I’ll be happy to guide you through this process. Just call.

A closer look at exclusions and deductions

Some employers offer dependent care benefits to employees. If you receive such benefits, you may be able to exclude all or part of them from your income.

Dependent care benefits include:

  • Amounts your employer paid directly to either you or your care provider for the care of your qualifying person while you work.
  • The fair market value or care in a day care facility provided or sponsored by your employer.
  • Pre-tax contributions you made under a dependent care flexible spending arrangement.

If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Your employer will be able to tell you whether your benefit plan qualifies.

The amount you can exclude or deduct is limited to the smallest of:

  • The total amount of dependent care benefits you received during the year.
  • The total amount of qualified expenses you incurred during the year.
  • Your earned income.
  • Your spouse’s earned income.
  • $5,000 ($2,500 if married filing separately).

If you are eligible to claim this exclusion, I’d be glad to help you with it.

What property qualifies?

Taxpayers can defer any capital gains taxes otherwise due from the sale of business property by reinvesting the proceeds in similar property as part of a qualifying 1031 like-kind exchange. One example of a like-kind exchange is trading in one car for another. However, many taxpayers also participate in like-kind exchanges for real property.

Who qualifies? Owners of invest­ment and business property may qualify for a §1031 deferral. In­dividuals, C corporations, S corporations, partnerships (general or limited), limited liability companies, trusts and any other taxpaying entity may set up an exchange of business or investment properties for business or investment properties under §1031.

What qualifies? Both the relinquished property you give up and the replacement property you acquire must meet certain requirements. Both properties must be held for use in a trade or business or for investment, and must be similar enough to qualify as “like-kind.”

Real property and personal property can both qualify as exchange properties under §1031, but real property can never be like-kind to personal property.

What doesn’t qualify? Certain types of property are specifically excluded from §1031 treatment, including:

  • Inventory or stock in trade.
  • Stocks, bonds or notes.
  • Other securities or debt.
  • Partnership interests.
  • Certificates of trust.

Please note: With like-kind exchanges, gain deferral is mandatory unless the taxpayer fails the like-kind exchange rules. Failure often results when the taxpayer closes on one deal, accepts the money from the deal and then goes on to purchase another property using the proceeds. To avoid this type of situation, you should let a qualified intermediary hold the money instead of accepting it.