Is the IRA LLC Subject to an Annual Tax Return?

December 13, 2020 | By Mark Nolan

QUESTION:

Do I have to file an annual tax return for my IRA LLC?

ANSWER:

It depends on certain factors such as the following:

LLC Entity Annual Report: Virtually all states require that an annual report for the LLC is filed with the Secretary of State.

LLC Entity State Income Tax Return: Some states require that an LLC even a single-member LLC file an income tax return at the state level and/or a franchise tax return. For example, we understand that in Texas an LLC with revenue below a certain threshold is exempt from the franchise tax; however, even if the franchise tax is not owed, there is still an obligation to file a “no franchise tax due” report. See more here: Texas Franchise Tax Report Forms for 2020

Please check with your local tax advisor regarding the local filing requirements.

Federal Level Form 1065, Schedule K-1 Tax Return:

If the sole member of the LLC is one IRA, Also, the LLC is deemed a disregarded entity such that no LLC federal tax return (Form 1065) filing is required for the LLC.

If the LLC has more thane one member (e.g., two or more separate IRAs), then a federal Form 1065 must be filed annually to report the income but it does not pay income tax.

Form 5498: While the Form 5498, IRA Contributions Information, does not apply to the IRA funded LLC, this form is used to report the total value of the IRA including Roth IRA to the IRS. The value of the IRA funded LLC also gets indirectly reported on Form 5498. The self-directed IRA custodian not the LLC manager or IRA account holder prepare and files Form 5498 with the government by May 31 following the year to which the report applies.

Form 1099-R: Another tax form that applies to IRAs but indirectly impacts the IRA funded LLC is Form 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., which is used to report distributions from IRAs. As a result, it is important to return funds from the LLC funded IRA prior to the account holder processing a distribution. The same is true if the member units from the IRA funded LLC will be distributed to the IRA account holder which is know as an in-kind distribution so that the IRA custodian can properly report the in-kind distribution.