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Can I keep my two businesses separate for tax purposes?

I'm half owner of a 50/50 LLC and we're doing business as two distinct entities. When profit/loss and tax liability pass through to our personal returns, will we both be responsible for half of each business?
Roni Lynn Deutch answered August 25, 2010
URL: http://www.entrepreneur.com/answer/222145
I am so glad you asked this question. Too many business owners forget about the tax implications of their businesses until filing season arrives. So, I applaud your forward thinking.

Your question boils down to this: How does an LLC report profits, losses, expenses, etc., from two distinct businesses both to the LLC’s members, and to the IRS?

I have to make a couple of assumptions here: One, you do not have a specific legal agreement in place that states profits will be split up any differently than the 50/50 ownership you mentioned above. Two, your businesses use the same Employer Identification Number through the LLC.

With those assumptions and from the limited information I have, here's what you need to know:

LLCs are the taxable entity here, since the businesses are both owned by the LLC they operate like separate divisions of the same company. Once each business earns profit or realizes a loss, it all rolls up to the LLC. Essentially, once the profit/loss is reported up to the LLC, it is one big pool of money and it does not matter which business earned it.

So, as a 50/50 member of the LLC you would receive 50 percent of the profits/losses for the LLC--meaning the sum total of each business. These businesses would not be considered distinct for tax purposes.

The LLC should report all profits/losses to you on Form K-1. This would include the combined profit/loss from both businesses owned by the LLC.

Roni Deutch is known as "The Tax Lady" for a reason: She has two decades of practical experience resolving IRS tax problems and preparing taxes for taxpayers nationwide. Consequently, she has become a well-known media personality and one of the few go-to tax experts in the country. She is the founder and owner of the nation's largest tax resolution law firm, Roni Deutch, A Professional Tax Corp.