My wife and I were advised to create a Partnership LLC for our rental home, and to file 1065 returns in order to protect our personal assets from business liabilities. Personal asset protection is important to us, and we have been paying an accountant to prepare the business return and K-1s for several years now. I recently saw information that advocates sending the IRS a request to change the LCC to a Qualified Joint Venture (disregarded entity), to save on accountant fees. I'm now wondering if the QJV provides the needed asset protection, and if we have just been wasting money on tax preparation fees. Any insight would be greatly appreciated.
If I am following correctly, this advice looks really convoluted. It mixes LLC law with tax law. First, an LLC is an LLC, it is not a partnership. That is why it is desirable, among other things. It is taxed like a partnership if there are two or more members, but that does not make it a partnership.
Your LLC will file a 1065 with the IRS if you have multiple members other than your wife. However, the LLC pays no tax. You and your wife will receive profits. An LLC is a disregarded entity. Because the two of you are the only owners, for IRS purposes you will be treated as one person so profits will flow to you jointly. Filing a 1065 has nothing to do with liability. The two of you will pay tax on your 1040.
Rental real property should always be held in an LLC or other entity that limits liability to the assets of the company. Doing what you have been doing is all you need to do. Let your accountant file the 1065 and issue K-1s. So long as you keep personal finances and assets separate from the business and so long as you operate the business in a business-like manner, you should be fine.
A joint venture is typically an arrangement between two companies to cooperate or the creation of a third company by two others to operate jointly. I am not sure that you could legitimately create a joint venture between you and your wife. Your LLC is already a disregarded entity. You are not going to save on accounting fees if you are being responsible. So long as your accountant is charging you fairly and reasonably, the services are a small cost of doing business. You have to pay taxes, and when it comes to real property having a competent accountant is imperative. I do not think that persons with rental property are wise to try to do taxes without an accountant.
I do not know going rates for accountants in Las Vegas. Based on rates in this part of the world, your return might run you $1500 to $2000 annually. It is not complicated but you need to take depreciation properly among other things.
In short, I think this article is simply wrong. If you have any doubts about the skills or fees of your accountant, shop around by talking with friends and doing some research. However, this idea of a joint venture to reduce accountant fees is, in my view, all but absurd.
Mr. Sprag provided you a complete answer. If he was answering my question, I would mark it as helpful. I would like to stress what he says, liability planning really has nothing to do with tax planning. First the tax answer. I am assuming you and your spouse are living in Nevada. As such, each of your ownership interests is considered community property, and as such, you SHOULD NOT BE FILING a partnership return. This is a waste of your money. Your community property interest are considered as one owner of the LLC, and as such can be disregarded for federal tax filing purposes and reported on your Schedule E. Thus you can get rid of the annual filing and fees for the 1065. Next, liability protection LLCs provide in Nevada exists no matter its federal filing status - disregarded, partnership, or corporation. Finally, considering a QJV is way too much tax planning to address your needs.
Finally, while there are very qualified CPAs out there, may however, cross the line when they discuss legal strategies - like asset protection. Many individuals follow CPAs advise regarding legal strategies and get themselves in uncomfortable situations. You may want to consider visiting with a tax attorney how understand LLC structuring in Nevada to give you the straight answers. Any tax attorney understand LLC interaction between law and federal taxes.
I wish you well.
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