May 2022

Pratt and LeFevre Corporation
https://prattandlefevre.com/contact-us/
450 Simmons Way, Suite 760,
Kaysville, Utah 84037
833-722-8848

BEFORE YOU GET INTO THE WEEDS.......

Before you get into the weeds, you need to understand:

The following are excerpts and published by the Bradford Tax Institute. The article was entitled; Partnership with Multiple Partners. Some of the information is in a simpler form. The article is available for anyone who wishes a copy.

Quote: "Before we get into the weeds, one important thing to know is that limited liability companies (LLCs) with multiple members—that is, owners—are classified as partnerships for federal income tax purposes unless you elect to treat the LLC as a corporation."

The Pros are:

1. You Get Pass-Through Taxation
2. You Can Deduct Partnership Losses (within Limits)
3. You Can Make Tax-Free Asset Transfers with the Partnership. The following is a quote:
   

   "You have flexibility to make federal-income-tax-free transfers of assets (including cash) between yourself and the partnership."

4. You Can Make Special Tax Allocations. Explanation is Quote " Partnerships can make special (disproportionate) allocations of taxable income, tax losses, and other tax items among the partners.

The Cons are outlined in the rest of the newsletter. Most of them have to do with how the sale of the assets are taxed if sold. Also, the partnerships are subject to Self-Employment tax. Just remember, Self-Employment tax may not be relevant if the LLC has a loss. S Corporations cannot pass a corporate loss on to an active LLC because of passive income rules.

If you have assets you want to transfer into an LLC with partners, including family members, that is a good way to use the equity in the property to your advantage. This newsletter from the tax institute is available for those who want to read the entire thing. Just drop us an email at info@prattandlefevre.com

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