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Old 07-30-2011, 03:52 PM
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LLC and continuous losses

I made a $1.8M investment into a company in 2007 and have not shown a profit for the business on my tax returns since. For the past 4 years I have written off close to $600,000 in business expenses as an LLC, this has reduced my total adjusted gross income from previous jobs that I have held. Is there a limit to the number of losses that I can continue to write off each year without showing income from the LLC?

The company I invested in is private and submits independent tax returns, I act as the Chairman but do not receive any reportable income.

This seems to be acceptable with the IRS?



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Old 07-30-2011, 09:31 PM
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“ Is there a limit to the number of losses that I can continue to write off each year without showing income from the LLC?”---> As your business, MMLLC, I guess, which is treated as a partnership, different, even more complicated rules apply. Generally, a partner's share of the partnership loss (including capital loss) is allowed only to the extent of the adjusted basis of his or her partnership interest at the end of the partnership's tax year in which the loss occurred (but before reduction by the current year's loss). This is not necessarily the same as the balance in the partner's capital account. Any excess is allowed as a deduction in later years to the extent that the partner's basis is increased above zero. The rules for MMLLC treated as an S corporation, S corp. shareholders are similar, with one major exception. A shareholder of an S corporation only increases his or her basis in the shares by any loans made directly from the shareholder to the corporation. Indebtedness guaranteed by a shareholder does not increase basis. Thus, a shareholder's basis in his or her interest will be less, in most cases, than a partner's. The partner's or shareholder's allowable loss may be deducted by the partner on his or her individual returns as a business loss, subject to the passive activity rules. Although the partnership itself may not carry the loss backward or forward to other years as a net operating loss, the partners' shares of the loss may result in net operating loss carrybacks or carryovers on their individual returns. Generally, if you have an NOL for a tax year, you must carry back the entire amount of the NOL to the 2 tax years before the NOL year (the carryback period), and then carry forward any remaining NOL for up to 20 years peafter the NOL year (the carryforward period).
“ The company I invested in is private and submits independent tax returns, I act as the Chairman but do not receive any reportable income. This seems to be acceptable with the IRS?”---> An LLC is not subject to taxes; instead, the income attributable to each member( if you are subject to income) is subject to taxes in that member's tax return. Generally, regular payments for services rendered by a member should be treated as "guaranteed payments" by an LLC. Guaranteed payment is a specific term in the Internal Revenue Code, which is defined as payments to a partner in his or her partner capacity for services or the use of capital if determined without regard to the income of the partnership. Guaranteed payments are deductible by the LLC as business expenses and the net profit of the LLC is reduced by that amount. The guaranteed payment is treated as ordinary income. As ordinary income, guaranteed payments aren't subject to income tax and FICA tax withholding as a salary would be; instead, guaranteed payments are subject to estimated income taxes and self-employment taxes.



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