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Converting from a single to multi member LLC

We are converting from a single to multo member LLC mid year and have questions

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On Sept 1st we are adding two members to the existing Single member LLC thus converting it to a multi member LLC taxed as a Partnership formerly was reporting as a Schedule C business on owner's tax return. We are not going to apply for a new EIN and have employees I realize that we need to file a short year tax return through the period ending Aug 31st and then another for Sept 1 thru end of Dec. How are the W2's handled in this situation? And, do I need to close the books on Aug 31st and start fresh as of Sept 1?

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Sam Otto
By UncleSam
Sep 2nd 2020 10:12 EDT

Hate to break it to you but if you are a sole-proprietor switching to a partnership you need to get a new EIN per IRS guidelines.

This means that your employees for this year will get two W-2s. I would start paying wages out of the new partnership come 9/30/20 to coincide with the ending of the quarter. Bear in my mind, partners can not receive wages, they may receive "guaranteed payments" but not wages.

As for closing the books the biggest thing is to keep a record of the partner's capital accounts. In this case I would personally recommend starting fresh with the books especially if you will be starting a new payroll. However, be sure to properly close out the books for ending the single-member LLC.

My biggest recommendation though is to hire and talk with a CPA to properly understand your situation and walk you through the process.

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Nellie Akalp
By Nellie Akalp
Sep 2nd 2020 12:36 EDT

Any time a single member LLC converts to a multi member LLC, one must apply for a new Tax ID number. You also must file form 8832 to make the election to be taxed as a partnership. Generally, books are closed under the single member LLC since taxed as a Sole Proprietorship and new set of records started to keep it clean. W2 should not have or need a change since the entity has, and will, continue to be an LLC. Hope you find this helpful. Feel free to email me directly anytime to chat. Info at CorpNet dot com

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