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Old 02-22-2014, 12:47 PM
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Deductions for LLC vs. Sole Proprietorship

Here's a question I have about how deductions are handled when you have income from both a sole proprietorship and an LLC:

I have an LLC with two partners and we do web design work. We work remotely in different states, and there are no expenses for the LLC. We only work together on certain projects, which get billed through the LLC, and we're each paid different amounts from each sum, so the profit disbursements vary from project to project.

We also do work outside the LLC as sole proprietors individually, which leads to each of us having our own list of business expenses that aren't for the LLC.

I was told that if the LLC takes on any expenses, each expense is divided by a third, since the profits are split 3 ways in the LLC because that's how we set up the operating agreement (even though this isn't how we normally disburse the profits). So we were advised to file the LLC's return as having no expenses, and then apply all of our individual expenses against the income from the sole proprietorship work.

How does this all get calculated at the end of the day? If, say, I earned $100,000 from the LLC in profit disbursements and have $35,000 in tax liability from that, and earned $20,000 in sole proprietorship work with say a $7,000 tax liability, but my non-LLC expenses are for example $40,000, what do I actually end up owing the government?

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