- How does a corporation report income from a single
member LLC that it owns?
- Is the interest on a second home deductible?
- What is the amount of social security withholding
for 2006?
- Are the
guaranteed payments made to the managing member of an LLC taxable?
- What is mileage rate for 2006?
- What is the standard deduction for 2005 tax
returns?
Q:
A corporation is
the owner of a single member Limited Liability
Company (LLC). What form do they file to report
income?
A:
When a corporation is the owner of a single member
LLC, the income is reported on the corporation’s
1120 or 1120S depending on the entity. The LLC does
not have to file a return on its own. If the LLC is
owned solely by an individual, the income is
reported on Schedule C, E, or F of the owner’s Form
1040. When the LLC is owned by a partnership, the
income is reported on the partnership’s Form 1065.
Q:
A Taxpayer
mortgages property on which he wishes to build a
second home. Is the interest deductible as home
mortgage interest?
A:
Section 1.163-10T of the IRS Regulations states that
a taxpayer may treat a residence under construction
as a qualified residence for a period of up to 24
months, but only if the residence becomes a
qualified residence as of the time that the
residence is ready for occupancy. The mortgage
should be secured by the lot and any property to be
constructed on the lot. If construction does not
take place, the deduction would not be allowed,
since the interest would be considered investment
interest expense.
Q:
What
is the Social Security threshold for 2006?
A:
The taxable
wage base in 2006 for Social Security will be
$90,000, up $2,500 from $87,500 in 2005. The amount
of withholding remains at 6.2%. Maximum employee
payments will be $5,580. Self-employed taxpayers
will have an increase to $11,160. Recipients of
Social Security and Supplemental Security Income (SSI)
checks will receive a 1.4% increase.
Q:
The taxpayer is a
member of a Limited Liability Company (LLC). He has
guaranteed payments as managing member. He has
income from profit of the LLC on his K-1. His
guaranteed payment is subject to self-employment
tax. Is the profit also subject to self-employment
tax?
A:
Yes. A member
of an LLC who is an active participating member must
pay S/E tax. Section 1402 of the Cod has never been
finalized; therefore, there is no clear
substantiation of the payment of S/E tax by an LLC
member. Thus, IRS is treating all general members as
liable for the tax and non-active limited members as
exempt from S/E tax.
Q:
Does the standard mileage rate for the business use of an automobile change for
2006?
A:
Beginning September 1,
2005, the standard mileage rate for the business use of an automobile increased
to 48.5 cents per mile. Charitable mileage is 14 cents. Medical mileage is 22
cents. Moving expense mileage is 22 cents. These rates were increased by the IRS
as a result of skyrocketed gas prices during the
summer & fall of 2005. In December 2005, the IRS
reduced the rate to 44.5 cents per mile, beginning
January 1, 2006. For more information regarding
current mileage rates (business, charitable, medical,
etc), visit the IRS webpage that contains up to date
information by clicking
on the following IRS webpage link:
http://www.irs.ustreas.gov/newsroom/article/0,,id=151226,00.html.
Q:
For tax returns filed for tax year 2005 what is the standard deduction for a
married couple filing a joint return? Married, filing separate? Single?
A:
The standard
deduction for a married couple who files a joint tax return for tax year 2005
increased to $10,000. A married couple who files separate tax returns the
standard deduction for each is $5,000. The standard deduction for a single
taxpayer is $5,000.
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