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hhbookkeeper
Level 2

sole proprietor AND LLC

I have a client who was operating in a sole proprietorship since last year.  In May, he obtained an LLC.  Can he continue to do business as a sole proprietor and as an LLC or does he now have to do business as an LLC. Also client is wondering if he has to transfer his assets purchased while a sole proprietor into his LLC.  I told him that a possible advantage of doing that would be having a depreciation expense to offset income.  

Solved
Best answer July 09, 2020

Best Answers
john-pero
Community Champion

sole proprietor AND LLC

If he operates two uniquely different enterprises there is no reason he cannot continue part of his business as a sole proprietor. The issue, though, is if there is any overlap he may "pierce the veil" of liability protection offered by operating within the LLC. Better to switch completely, although he may have to file Schedule C as sole prop for the first half of year and 1065 for second half.

 

Yes, he should "sell" his sole prop assets to his LLC, instead of just using them. Back to the liability protection and insurance coverage purchased by LLC.  He sells it by making a Member Contribution (equity increase). 

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2 Comments
john-pero
Community Champion

sole proprietor AND LLC

If he operates two uniquely different enterprises there is no reason he cannot continue part of his business as a sole proprietor. The issue, though, is if there is any overlap he may "pierce the veil" of liability protection offered by operating within the LLC. Better to switch completely, although he may have to file Schedule C as sole prop for the first half of year and 1065 for second half.

 

Yes, he should "sell" his sole prop assets to his LLC, instead of just using them. Back to the liability protection and insurance coverage purchased by LLC.  He sells it by making a Member Contribution (equity increase). 

View solution in original post

hhbookkeeper
Level 2

sole proprietor AND LLC

Thank you so much!!!

 

So, when he contributes his assets to the LLC would it be at the fair market value or at the value remaining on the books [asset - accumulated depreciation].

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