I’m a high earner (w2 employee) and my spouse just started a single member LLC for buying and selling hobby items including trading cards (she’s been doing it on eBay for years, but just decided to form the LLC)
My spouse doesn’t work and has no w2 income. We file our taxes jointly.
I assume the LLC income and expenses can all be run on schedule C and be offset against my w2 income (to the extent there are losses). Is that right?
And in this case can she get a FEIN for the LLC? Would that impact how taxes are filed. There are no employees.
Thanks
Spouse started Single Member LLC – I’m w2
byu/Adventurous_Big1794 intax
Posted by Adventurous_Big1794
4 Comments
Yes she should get an EIN for the LLC, although it’s not strictly required if she’s going to file as a disregarded entity.
Life will be easier if you set up a separate bank account in the LLC’s name and run everything like PayPal, etc. through there.
Since you file jointly, the LLC activity goes on Schedule C and flows to your 1040. You need to be careful with the hobby loss rules under Section 183, especially with trading cards. If the IRS decides this is a hobby, you cannot use those losses to offset your high W2 income.
An EIN is fine for banking and won’t change your status as a disregarded entity. It is an administrative step that doesn’t impact the tax math. Just ensure she has a clear profit motive, as that is where most founders get caught off guard during an audit.
A SMLLC reports income on the Schedule C unless it further made a corporate election.
Any losses are treated as negative income, so can be used against other income.
The concern is whether her activity would be considered a business, particularly if there are repeated losses. If it is considered a hobyy/activity not engaged in for profit, or if it is considered resale of personal items, no expenses are allowed (generally).
She should get a business bank account and otherwise act as a business to help justify that it is a business activity.
Forming the LLC does nothing in terms of how this gets reported on your taxes. You say she’s been doing it for years, how did she report the income before?