What do I need to do for personal taxes? (New LLC)

[gaspin]

What do I need to do for personal taxes? (New LLC)

This past year in March two friends and I created a new LLC and I’m curious how that will affect my, and their, personal taxes.

Details: We created our LLC in March 2013 running on the calendar year. I know this means we must file for our business by April 15th which I’m having trouble with, but that’s not the concern of this post. Instead, I would like to gain some insight into how we file our personal taxes.

One thing to note is we are not operational yet as the company is website based and we’re still in the development stage. Because of that, we only have expenses with no income generated.

I usually use Turbotax for my taxes as I don’t need anything too complex
Ex. https://turbotax.intuit.com/personal-taxes/online/basic.jsp

However, I don’t know if I, or they, can still use something like that now that we own a business. Instead, I’m thinking we’ll need to use something a little more:
Ex. https://turbotax.intuit.com/personal-taxes/cd-download/home-and-business.jsp

I know the easy answer is to use a CPA for our business and personal taxes, streamlining them both together. However, for us younglings, a CPA is too expensive.

Questions:
1) Which version of Turbotax should we use to file for our personal taxes?
2) What are the specific nuances we should take into consideration when filing?
3) What potential pitfalls or mistakes could I make that will catch up with me (us) later on.
4) Any finer points you’d like to give me would be greatly appreciated! I’m in a little over my head!

[vangogh]

This isn't my area of expertise, but I think the way it works is for tax purposes you'll treat the LLC as a partnership and there are some forms to fill out that show how much each of you earned through the business. The business gives each of you a form and you each use the info as part of your revenue when filing personal taxes. I'm not 100% sure, but I think in Turbo Tax you'd just add that revenue when they ask you about your revenue (or losses as the case may be).

If you fill out the forms from the IRS then you'd be filling out a schedule C to report income from a business (along with any deductions). The result of that form goes on the 1040 in a filed above or below income reported on W2s.

I'm not sure how deductions work for an LLC. I'm not sure if only the LLC takes them or not. I would think you get to take some since you're still filling out personal taxes. That's something to look into. TurboTax is good about letting you explore. You can make changes before submitting so maybe try different answers to some questions just to see where they lead and back out to the right answers. You might discover a few things you can deduct you weren't aware of.

As far as pitfalls, the main thing is if you fill things out incorrectly and the IRS decides to audit you, then you'll be on the hook for whatever you should have paid and maybe have a small penalty to pay as well. Odds are that won't happen, but it's really the main pitfall. I suppose the other is not taking some deductions you could have and losing out and paying a little more in taxes than you needed to. Not anything you want to do, but not really the worst thing in the world either.

As you know the best thing to do is get the help of a professional accountant, but it's fine doing it yourself. It'll be confusing the first time or two, but each year you fill taxes out on your own they get easier. I felt lost the first year I filled out mine. A few years down the road and I felt much more confident.

I just did a quick search over at the IRS.gov site and found some info about how an LLC is classified for tax purposes (http://www.irs.gov/Individuals/Self-Employed/LLC-Filing-as-a-Corporation-or-Partnership). It depends how you set it up as to wether you file as a corporation or a partnership. The page I linked to links to some forms, one being the partnership income form I mentioned above.

[Evan]

A CPA will be a lot cheaper in the long-run, and probably a lot less than you think. Penny wise, pound foolish. A lot of your expenses may also be capitalized if you haven't yet become operational. Of course you may have known that because TurboTax will make you a tax expert in a few clicks.

You didn't say how the LLC was taxed... but presumably you'll need the business version of TurboTax.

[tinker9696]

I totally agree with Evan... doing your taxes on your own may cost you in the long run. The CPAs know all the tricks that you may overlook with a self program.
A good CPA will allow you to pay in installments. It in my opinion is worth the money