I am a principal member of a small two-member member-managed Delaware LLC,
which I use primarily when I do some consulting gigs here and there
(I also have a regular full-time job). I opened the LLC in Jan 2003
and registered it for business in the state of
Connecticut (where I live). My question: what forms, reports, etc. do
I need to file (and with which entity) to report the LLC income/loss
(almost break-even); to keep the "good-standing"; and to report the
income/loss on my (and the other LLC member) personal tax returns?
I understand that there are volumes of information on the subject all
over the web, and I would appreciate a compiled answer (not just a
simple list of hyperlinks).
Thank you.

Hello and thank you for your question.

One of the advantages of LLCs like yours is they can elect to be taxed
as partnerships for tax purposes, and partnerships are flow-through
entities for most tax purposes.  So your reporting obligation consists
of filing the proper forms (described below) to that the IRS and the
Connecticut Commissioner of Revenue Services know to look to your and
your fellow LLC member's personal returns for the income that the LLC
earned during the year.

"Partnerships file Form 1065 (PDF), U.S. Partnership Return of Income,
to report income and expenses. The partnership passes the information
to the individual partners on Schedule K-1, Form 1065. The partners
report the information and pay any taxes due on Form 1040. Because
partners are not employees of the partnership, no withholding is taken
out of their distributions to pay the income and self-employment taxes
on their Forms 1040."
http://www.irs.gov/faqs/faq9-1.html

Federal reporting obligation:

Probably you already have a taxpayer ID number for your LLC.  If not,
you'll need to file Form SS-4 to obtain one.
http://www.irs.gov/pub/irs-fill/fss4.pdf
http://www.irs.gov/pub/irs-pdf/iss4.pdf

The LLC will file Form 1065
http://www.irs.gov/pub/irs-fill/f1065.pdf
and it will issue Forms K-1 to you and your co-member
http://www.irs.gov/pub/irs-fill/f1065sk1.pdf

Instructions for Form 1065
http://www.irs.gov/pub/irs-pdf/i1065.pdf

To confirm that you want your LLC to be treated as a partnership, Form
8832 (classification election) must be filed with the initial Form
1065 income tax return to notify the IRS of your choice to be taxed as
a partnership.
http://www.irs.gov/businesses/small/article/0,,id=111556,00.html
http://www.irs.gov/pub/irs-pdf/f8832.pdf

Connecticut tax reporting:
Connecticut also treats LLC entities as flowthrough partnerships for
tax purposes.  The Connecticut form is Form CT-1065
http://www.drs.state.ct.us/forms/03partner.htm
http://www.drs.state.ct.us/formlib/2003/IncomeTax/CT-1065.pdf
http://www.drs.state.ct.us/formlib/2003/IncomeTax/CT-1065Book.pdf

Finally, there is a newly increased business entity tax which your LLC
must pay every year, and an annual report requirement:
"Business Entity Tax
For taxable years beginning on or after January 1, 2002, there is an
annual business entity tax (BET) of $250. For taxable years beginning
on or after January 1, 2003, and prior to January 1, 2004, the tax
also includes a 20% surtax on the BET. The sum of the BET and the
surtax is $300. The BET applies to the following entities, if required
to file an annual report with the Connecticut Secretary of the State:
....
Limited liability company (LLC), which is, for federal income tax
purposes, either treated as a partnership if it has two or more
members, or disregarded as an entity separate from its owner, if it
has a single member"
http://www.drs.state.ct.us/pubs/IP's/2003/ip03(34).htm

Q&A on the Business Entity Tax
http://www.drs.state.ct.us/pubs/IP's/2003/ip03(15).htm

You use Form OP-424 to make the annual report of the LLC and to pay
the business entity tax
http://www.drs.state.ct.us/formlib/2003/BET/notice.htm
"The 2003 Business Entity Tax return will be mailed to you in February
of 2004.  This form will contain information personalized to your
business.  To ensure accuracy in processing, please use the preprinted
form which will be mailed to you.  However, if you need to file your
2003 Business Entity Tax return before receiving your individualized
copy,  you may download Form OP-424, complete it and mail it to the
address on the form."
http://www.drs.state.ct.us/formlib/2003/BET/OP-424DRSN.pdf 

That's all you need to do!

Search terms used:
LLC 1065 site:irs.gov
connecticut llc 1065
ct-1065 2003 
op-424 2003

Thanks again for bringing us your question.  If you find any of the
above unclear, please request clarification.  I would appreciate it if
you would hold off on rating my answer until I have a chance to reply.

Sincerely,
Google Answers Researcher
Richard-ga

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Request for Answer Clarification by knowser-ga on 11 Jan 2004 10:27 PST

Thank you, Richard. Is there a BET or BET-equivalent on the Federal level?

---

Request for Answer Clarification by knowser-ga on 11 Jan 2004 10:51 PST

One more clarification: you explained that the members use K-1
schedule to report their LLC profit/loss on their personal federal
returns 1040. What about the state personal tax return (CT-1040)? Is
there a separate K-1 schedule for the state (CT-1065)? Or should the
federal K-1 be used on the state return?

---

Clarification of Answer by richard-ga on 11 Jan 2004 11:57 PST

Hello again:

There is no BET-type tax at the federal level.  An LLC taxed as a
partnership pays no franchise or filing fee to the IRS.

And Connecticut's income tax is simple enough that where a domestic
LLC is owned by two CT residents, you don't even need to use the K-1
or any Connecticut version of it.  The CT-1065 simply states that "The
partnership must provide each partner (other than partners that are C
corporations) with a schedule of Connecticut modification amounts, if
any...."
http://www.drs.state.ct.us/formlib/2003/IncomeTax/CT-1065.pdf

Connecticut simply computes its tax based on your federal adjusted
gross income (AGI).
http://www.drs.state.ct.us/formlib/2003/IncomeTax/CT-1040.pdf
So once your federal return is completed, and assuming there are no
'Connecticut modification amounts" on the CT-1065, your AGI on line 34
of your 1040 gives Connecticut everything needed for your CT income
tax.  So again, there's no need to attach any kind of K-1 to your CT
return.

Cheers!
Richard-ga

Thank you.