Limited Liability Companies…the darling of small business. Along with S Corporations, probably one of the most used entity-types.
What is in a name?
Be cautious…a Limited Liability Company (LLC) is not the same as a Limited Partnership. Both have the word ‘Limited’ in the name.
What form do they file?
A one-owner LLC will file in the owner’s 1040 as if there was no separate entity. If a business, look for it on Schedule C (or Schedule F if farming). If rentals, look for them on Schedule E with personally owned rental properties.
If more than one owner, the LLC actually gets to choose what form to file. Most choose the 1065 for it’s flexibility combined with the pass-through tax savings.
How do I tell it is an LLC?
If one owner:
- it may not be obvious
- look for LLC at the end of the name of the entity on the Schedule C or F
- for rentals, you may not be able to tell from the tax return
If more than one owner:
- look for LLC at the end of the name on page two of Schedule E of the part-owner’s personal return
- on the 1065, look at Schedule B, Line 1 (2009 returns)
Why does the lender care?
A sole proprietor has unlimited liability for any debts or claims against his/her business. Likewise for a rental owner.
The owners of an LLC (even if only one owner) have limited liability. That means more protection and less risk exposure for the owner. That also means that as long as the lender gets a personal guarantee, the lender also has more protection. If something else the owner/guarantor is involved in goes down…it may not take your collateral down as well.
How do I calculate cashflow?
Since the LLC does not have a special return, you cashflow it just as you would any other entity filing that form. The good news: no new form to learn. Of course, that means you need to know how to cashflow a 1040 and a 1065.
Where do I learn more about LLCs and the forms they file?
My online lender training site has several eCourses to help you.
These eCourses are complimentary. Check them out!
These require a subscription (as low as $79/mo to access the entire eCourse list).
Analysis: General Topics
1040 Personal Tax Return
1040 C 1) Basics and Overview (14:35 minutes)
1040 C 2) Detailed Review (25:01 minutes)
1040 Schedule F Farming (21:35 minutes)
1065 Partnerships and LLCs
1065 1) Basics and Overview (17:16 minutes)
1065 2) Company Cashflow (16:24 minutes)
1065 3) Owner Cashflow (19:49 minutes)
How to I subscribe to Lender’s Online Training?
I thought you’d never ask! ‘-)
An individual subscription costs $79 each month and gives you access to all of our eCourses. As I write this blogpost there are more than 20 with more on the way.
Or your entire financial institution can save money by subscribing enterprise-wide or even putting my eCourses on your Learning Management System (LMS).
Here is the link to check it out.