Questions about first-year tax reporting as prop firm member

R

renmq034

I joined a prop firm last year with ABC LLC (I am the only member) they set up for me. Just received K1 issued from the prop firm to my ABC LLC.

Called couple of CPA already. One told me since I am the only member of ABC LLC I just need to report K1 on schedule c of my 1040. The other one told I must do ABC LLC tax and my own tax separately...

Totally confused...any prop trader with same setup can give some advice/tips? Really appreciate!!!
 
A single member LLC is a disregarded entity, which means that for tax purposes it doesn't exist--unless you filed an election to have it treated differently. If you did not file an election, then your trading activity will be reported on your personal tax return, as part of your form 1040.
 
BMK said:
A single member LLC is a disregarded entity, which means that for tax purposes it doesn't exist--unless you filed an election to have it treated differently. If you did not file an election, then your trading activity will be reported on your personal tax return, as part of your form 1040.
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that sounds right. I am reading Trader Tax Guide. Seems I don't need to pay SE as there is only ordinary income (item 1) on K1 and SE earning (item 14) is 0. Am I right if I file LLC with my 1040?
 
one more thing - I know my prop firm use LLC member model. Can LLC member be an individual, or must be a real LLC? In other words can K1 be issued to individual, or must be LLC? If yes any tax treatment diff between individual and LLC?

I lost job last year and joined prop firm kinda for fun so didn't even bother to figure out all these things before...until I got K1 with some amount of ordinary income.

Thanks!!!
 
For federal tax purposes, a single member LLC has the same treatment as an individual, unless you have made an election to be an S-corp, or some other type of election for a different classification.

So the K-1 would have the name of the LLC and its federal tax ID number, but the income and deductions on the K-1 would be reported on the individual's Form 1040, on the applicable schedule. That could be Schedule C, Schedule E, Schedule D, or even Schedule F, depending on the type of income, and which lines on the K-1 are used.

Maybe I am misunderstanding your question. If you are asking if an LLC can be a member of another LLC, the answer is yes. If you are asking if an individual can be a member of an LLC, the answer is also yes. A prop firm might require you to set up your own LLC as a matter of policy, but it is not required by law.

Note that if a single member LLC does not have employees, the IRS says that it is not even required to have a federal tax ID number. The individual who is the sole member can simply use their social security number. With that being said, most single member LLCs do obtain a federal tax ID number, and the use of such a number is not unlawful. But in many cases it is not required.

BMK
 
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BMK said:
For federal tax purposes, a single member LLC has the same treatment as an individual, unless you have made an election to be an S-corp, or some other type of election for a different classification.

So the K-1 would have the name of the LLC and its federal tax ID number, but the income and deductions on the K-1 would be reported on the individual's Form 1040, on the applicable schedule. That could be Schedule C, Schedule E, Schedule D, or even Schedule F, depending on the type of income, and which lines on the K-1 are used.

Maybe I am misunderstanding your question. If you are asking if an LLC can be a member of another LLC, the answer is yes. If you are asking if an individual can be a member of an LLC, the answer is also yes. A prop firm might require you to set up your own LLC as a matter of policy, but it is not required by law.

Note that if a single member LLC does not have employees, the IRS says that it is not even required to have a federal tax ID number. The individual who is the sole member can simply use their social security number. With that being said, most single member LLCs do obtain a federal tax ID number, and the use of such a number is not unlawful. But in many cases it is not required.

BMK
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thanks a lot, man!!! this really clears my confusion.

I am still reading Trader Tax Guide...trying to figure out what's the best prop firm trader, IC or LLC member and corresponding structure (SMLLC or SCorp). Appreciate again!
 
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