Question for CPAs/partners in LLCs

[flyingcheesehead]

Hi all,

After formalizing our partnership into an LLC, I have some questions about situations I haven't encountered before.

With our LLC, we're going to file a 1065 and K-1's, so things will go on our personal taxes. However, I realized that anything we put into the LLC as "income" is going to end up getting taxed twice (once because we pay taxes on our income, and then we put it into the LLC and get taxed on it there). The CPA suggested we put it in as capital contributions, but if we do that with the hourly fees, we will end up owning different amounts of the company/airplane, which is not desired.

How do those of you who are in LLC partnerships handle this?

 

[midwestpa24]

I am not sure as our CPA handles it, but since the LLC is making "income" then the expenses of the LLC can offset that income making it a zero net gain financially. I think that is how ours works.

 

[Clip4]

If the LLC shows a profit at the end of the year, you will receive a K1 for your share. Some years you will show a loss.

 

[midlifeflyer]

Generally speaking, unless you have elected to treat the LLC as a corporation for tax purposes, income and loss is passed through to the partners. That mean only th patterns are assessed income taxes, not the LLC .

 

[flyingcheesehead]

Right. But, any of that "income" that comes from us is being taxed twice, which is what we're trying to avoid.

Part of the point of the hourly income was to build up a savings account for when the engine overhaul needs to happen, but it's more advantageous for us to simply save that money in our own accounts and even things out between ourselves than it is to actually charge ourselves an hourly rate for that purpose.

 

[Topper]

You need an accountant. Many ways it can be done, I would have an asset account called maybe “reserve for replacement”. Suppose you allocated x dollars to engine reserve for the year. This would come in as cash and get booked as an asset. The balance sheet would change but it would not be income. The engine OH would increase the value of the airplane so when the engine is overhauled, you would reduce the “reserve for replacement” and increase the asset “airplane”. There is a little more to the accounting, but hopefully this is enough of an explanation to help you see it can be done.

Because you may be using cash accounting, it may have to be booked under your individual capital accounts, but it will still work. Unless the plane is used for business, you probably don’t want a gain or loss at the end of the year.

Jim

 

[flyingcheesehead]

You need an accountant. Many ways it can be done, I would have an asset account called maybe “reserve for replacement”. Suppose you allocated x dollars to engine reserve for the year. This would come in as cash and get booked as an asset. The balance sheet would change but it would not be income. The engine OH would increase the value of the airplane so when the engine is overhauled, you would reduce the “reserve for replacement” and increase the asset “airplane”. There is a little more to the accounting, but hopefully this is enough of an explanation to help you see it can be done.

Because you may be using cash accounting, it may have to be booked under your individual capital accounts, but it will still work. Unless the plane is used for business, you probably don’t want a gain or loss at the end of the year.

We do have an accountant, but he has no experience with an airplane LLC. Some of my questions to him prompted the questions here.

We are using accrual accounting.

What would be wrong with a loss at the end of the year? That ends up as negative "income" on our personal taxes, increasing the refund.