We two partners started a business (LLC) in 2012. My partner did not get a chance to contribute so we have agreed that 100% of the business income comes to me for 2012. I understand that I will need to file form 1065 (schedule k-1) along with my 1040. But does the LLC also need to send some form to the IRS directly? How will the IRS know that my partner and I decided that I can keep 100% of the profits?
Estate Planning Attorney
The partnership return is filed by the partnership or the owners/responsible person. That appears to be you. The IRS will know who is getting distributions based on the 1065 and your 1040s. These are pretty basic questions, so I think if you are experiencing some confusion you should hire a qualified CPA (hire now before things get too busy during filing season).
This is not legal advice nor intended to create an attorney-client relationship. The information provided here is informational in nature only. This attorney may not be licensed in the jurisdiction which you have a question about so the answer could be only general in nature. Visit Steve Zelinger's website: http://www.stevenzelinger.com/
Mr. Zelinger's answer is right on point. Just as a point of clarification, the Form 1065 issues a K-1 to you and your partner, which is also filed with the Form 1065 filed with the IRS. It will reflect your percentage ownership. This means you cannot own more that 99.9% if you wish to be a partnership.
You do not file the K-1 with your Form 1040. You report the net income on Sch E of your Form 1040, and if there are other items, such as interest paid, or charitable deductions made, these items are reflected on other lines or schedules of your Form 1040. Speak with a CPA or Enrolled Agent.
It is also noted that while your partner did not make a capital contribution in the form of cash to the business, I assume he did something of value, and that you may, after consulting your attorney, decide to place a value ("sweat equity if you will), on any effort he contributed, but that is for you and your partner to decide, and then reflect any such value as a capital contribution and reflect it in the minutes of the LLC.
If you do not have an Operating Agreement, you should secure one from your attorney, and if you do not have one, I would be happy to be of assistance. I can be reached at 973-994-9080.
Good luck with your venture.
The foregoing is not intended to be legal advice upon which you may rely as I have not been retained for this purpose.
Mr. Zelinger and Mr. Bearg have provided excellent advice.
If this answer was helpful, please mark it as helpful or as a best answer. This answer is for general education purposes only. It neither creates an attorney-client relationship nor provides legal guidance or advice. The answer is based on the limited information provided and the answer might be different had additional information been provided. You should consult an attorney.