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'[OT] Business: LLC, Partnerships, taxes, etc (USA)'
2009\05\11@090948 by alan smith

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For those outside the US..can probably ignore.  So I have a long term "partner" who brings me in on projects when he needs a board or circuit designed for his clients projects.  Its worked well over the years and now he has a product of his own to design and sell.  Initially he approached me and asked for a bid on doing the design, and I provided that to him.  Then he asked..do you want to just be paid, or have a cut of the profits (always a risk)and honestly my time and materials on the board are about $10, pretty small risk.  Now comes the question on tax liability.  He wants to form a LLC, with myself and two others.  The LLC will purchase the pieces from us...my board, his mechanical part all at 'cost' and then we get paid back from the LLC, as profit sharing.  From a tax liability, my costs for parts (no labor) are a tax deduction on my schedule C for the consulting business, and then the profit is typically my design and build time, very straight
forward but its all under my company name.  Now that the LLC is thrown in...I wonder how the IRS looks at me selling something to the othe LLC, and then taking back profits.  Either the LLC pays me direct for the costs, and then takes in profit sharing above that but it seems just slighty odd and not sure completly legal to do.

Just wondering if anyone else has been involved in something like this. Of course the obvious answer is...talk to a tax attorny but figured I would try to get some idea from the list...as there are several smart business folks on here as well.


     

2009\05\11@151732 by Vitaliy

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alan smith wrote:
{Quote hidden}

IANATA, the following is just my opinion, etc etc... :)

It seems to me, that what you proposed would be completely legal. The LLC is
a separate entity from your physical person, so the LLCs can conduct
business, even if they share members.

For a thought experiment, take it to an extreme. Say there are two LLCs,
each with 100 members, and you happen to be a member of both. First LLC
makes a gadget that is a critical component in a Second LLC's product. Would
the IRS force you to sell your share in one of the LLCs, or force the two
LLCs to merge? Unlikely.

Or consider a situation where you are a member of First LLC, and your spouse
is a member of Second LLC. There's clearly a conflict of interest as far as
IRS is concerned, right? Where would they draw the line -- immediate family,
cousins, relatives twice removed?

If I were in this situation, I would not give it a second thought as to the
legality of such arrangement.

Vitaliy


2009\05\11@184315 by Bob Axtell

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I'd get my money upfront. If you have an arrangement like this, you
will be forever wondering
if you are being screwed... and you probably are...

--Bob A

On Mon, May 11, 2009 at 12:16 PM, Vitaliy <spam_OUTspamTakeThisOuTspammaksimov.org> wrote:
{Quote hidden}

>

2009\05\11@190341 by Roger, in Bangkok

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LLCs are separate entities only in the eyes of the particular state(s) where
they are registered.  Note that all LLCs are state registrations and come
under laws that vary widely from state to state.  The IRS tends does NOT
recognize LLCs for tax purposes, so they treat all "members" of an LLC as an
ordinary partnership for federal tax purposes only.  Look at the state regs,
most are no doubt online.

Regards/Roger, in Bangkok

On Tue, May 12, 2009 at 5:36 AM, Bob Axtell <.....engineerKILLspamspam@spam@cotse.net> wrote:

{Quote hidden}

2009\05\11@190541 by Roger, in Bangkok

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ggrrr ...
"The IRS does NOT recognize ..."

On Tue, May 12, 2009 at 6:03 AM, Roger, in Bangkok <.....merciesKILLspamspam.....cscoms.com>wrote:

{Quote hidden}

2009\05\11@192126 by AGSCalabrese

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On Mon, May 11, 2009 at 12:16 PM, Vitaliy <EraseMEspamspam_OUTspamTakeThisOuTmaksimov.org> wrote:
{Quote hidden}

I see no reason for you to form an LLC or a partnership.  You , he and  
the 3rd guy
can have an agreement which disperses profits ( net or gross ) based  
on a formula.
This exposes you to less liability.  I recommend getting a cut of the  
gross revenues.
This avoids many questions about what is a legitimate expense !  You  
simply become
 an expense to the product.
Gus

2009\05\11@193313 by Vitaliy

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Roger, in Bangkok wrote:
> ggrrr ...
> "The IRS does NOT recognize ..."
>
> On Tue, May 12, 2009 at 6:03 AM, Roger, in Bangkok
> <merciesspamspam_OUTcscoms.com>wrote:
>
>> LLCs are separate entities only in the eyes of the particular state(s)
>> where they are registered.  Note that all LLCs are state registrations
>> and
>> come under laws that vary widely from state to state.  The IRS tends does
>> NOT recognize LLCs for tax purposes, so they treat all "members" of an
>> LLC
>> as an ordinary partnership for federal tax purposes only.  Look at the
>> state
>> regs, most are no doubt online.

Our company is an LLC that gets taxed as an S-corp.

Vitaliy

2009\05\11@193710 by Vitaliy

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Bob Axtell wrote:
==========
I'd get my money upfront. If you have an arrangement like this, you
will be forever wondering
if you are being screwed... and you probably are...
==========

Alan said that his investment in the board is minimal ($10), and that he's
been partners with this company for a while -- so I assume there's quite a
bit of trust in this relationship.

The ultimate source for this sort of advice is definitely a tax attorney,
but in my opinion there is absolutely nothing wrong with the proposed
arrangement, as he described it.

Vitaliy

2009\05\12@174253 by alan smith

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Thanks for all the feedback.  Bob...I would agree if I had not already been involved with many projects with him, and this was just a natural to come together.

I think the LLC is there only as a point of being a business for selling the products.  Would you buy from Alan Smith, or from DigiDesigns, LLC ?  Sounds a little more legit when its a company...or maybe not.


--- On Mon, 5/11/09, Vitaliy <@spam@spamKILLspamspammaksimov.org> wrote:

{Quote hidden}

> --

2009\05\12@213225 by cdb

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Would I be correct in thinking that LLC stands for Limited Liability
Company?

Colin
--
cdb, spamBeGonecolinspamBeGonespambtech-online.co.uk on 13/05/2009

Web presence: http://www.btech-online.co.uk  

Hosted by:  http://www.1and1.co.uk/?k_id=7988359






2009\05\12@214403 by Vitaliy

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cdb wrote:
> Would I be correct in thinking that LLC stands for Limited Liability
> Company?

Correct. I think "Ltd" is the UK way of saying the same thing. :)

2009\05\12@214404 by Vitaliy

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alan smith wrote:
> Thanks for all the feedback.  Bob...I would agree if I had not already
> been involved with many projects with him, and this was just a natural to
> come together.

This is the best type of business relationship you can have. A lot of times,
contracts aren't worth the paper they're written on.


> I think the LLC is there only as a point of being a business for selling
> the products.  Would you buy from Alan Smith, or from DigiDesigns, LLC ?
> Sounds a little more legit when its a company...

Plus, an LLC shields your personal assets, in case someone decides to sue
you. AND, as a corporation you will end up paying less in taxes, compared to
an individual or a partnership.

Vitaliy

2009\05\12@231349 by Nate Duehr

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Vitaliy wrote:

> Plus, an LLC shields your personal assets, in case someone decides to sue
> you. AND, as a corporation you will end up paying less in taxes, compared to
> an individual or a partnership.

Only partially true.  The "corporate veil" can be "pierced" in a number
of ways, the most common way being proving "gross negligence", which has
a different meaning under the law than "negligence".

Limited Liability Corporations are useful tools, when needed, to do
exactly what they say... limit Liability.  But no corporation's officers
get a "free pass" just because they did something "for the company"
instead of on their own.  There are limits to the limits.  :-)

A good example of how an LLC is useful, is straight out of my life right
now... aircraft "ownership".  The LLC owns the aircraft, and the
"partners" (you NEVER want to describe an LLC as a "partnership", once
you've done that -- you can open yourself up to that "veil piercing",
and partnerships are a completely different legal entity than an LLC)
own the corporation.

Now if one of the Corporation's owners goes out and starts dropping Baby
Grand Pianos on people one day, my personal assets (including my HOME)
aren't at any significant risk of becoming part of the lawsuit from the
dead people's families.

Does ANY of that mean I won't be named in the lawsuit and have to pay
HUGE legal fees anyway?  No.  In the real world, EVERYONE gets named.
The LLC kicks in LATER... when the judge tells me and my lawyer there's
no possible claim against my assets, the lawyer has proven I wasn't
involved, and ONLY THEN I walk away.

The lawyers always get paid, no matter what... :-)

Nate

2009\05\15@021210 by Vitaliy

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Nate Duehr wrote:
>> Plus, an LLC shields your personal assets, in case someone decides to sue
>> you. AND, as a corporation you will end up paying less in taxes, compared
>> to
>> an individual or a partnership.
>
> Only partially true.  The "corporate veil" can be "pierced"

I thought to myself, that someone would inevitably bring this up. :)

I remember our lawyer telling us about some of the ways to help prevent the
piercing of corporate veil: always add "LLC" to the company name when using
it, even in everyday business; don't mix company finances with personal
finances; try to create the impression that you're a real company by
"wearing many hats" and avoiding the impression that you're not a company...
etc. :)


> A good example of how an LLC is useful, is straight out of my life right
> now... aircraft "ownership".  The LLC owns the aircraft, and the
> "partners" (you NEVER want to describe an LLC as a "partnership", once
> you've done that -- you can open yourself up to that "veil piercing",
> and partnerships are a completely different legal entity than an LLC)
> own the corporation.

Do you belong to a flight club?


{Quote hidden}

Indeed.

Vitaliy

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