<p>DS3 joined a LLC with his two friends to design and sell T-shirts. It was supposed to be something to get their feet wet. They sold approximately 100 T-shirts to other students this year and have about 50 T-shirts in their inventory. Their revenue may be around $1500 while the cost of the goods and establishing the LLC is higher than their revenue. They do not get any salary. The problem is that DS3 has to report the business tax (Form 1120 or 1120S) quickly because of the financial aid application. He also has to list the net worth of his business in FAFSA and CSS. It is kind of messy. I am wondering if anyone care to shed some light on the following:</p>
<p>1) Their business has $400 worth of inventory and about $300 in debt (to his friends parent). They do not own any other assets except for a website. How much would be the net worth of the LLC? Would it be $100? I doubt that anyone would pay more for that since their school does not want them to sell their goods in the school.
2) His owns 20% share. Would the net worth of his business be $20?
3) I intended to buy TurboTax basic for my personal tax return and his. Do I need to buy the Deluxe version because of this?
4) Are there something critical I may have missed?</p>
<p>He needs to file a return for the LLC, which you can’t do with turbotax - it is a business return, not a personal return, and goes on form 1065. His share of any income or loss is then reported to him on a K-1 (one for each partner), which is then reported on his personal tax return. If they make a profit next year, make sure he understand he is responsible for quarterly payments to the IRS, as well as self-employment taxes on his distributive share if he is actively involved in selling the shirts (as opposed to just being an investor).</p>
<p>There is a version of TurboTax called TurboTax Business 2012 that has the form 1065 and can generate a K-1. It costs around $110, I think, but it makes filing very simple. If you already know how to complete the 1065 and K-1, you can just go to [Internal</a> Revenue Service](<a href=“http://www.irs.gov%5DInternal”>http://www.irs.gov) and download the forms yourself.</p>
<p>Thank you very much too. We figure that it is a good experience for DS3 to go over the tax form. It turns out that the goods sold and inventory are much more than I thought. So, the total assets could be in the order of $2000.</p>
<p>Form 1065, Schedule L, line 19a has the loans from partners. DS3 and friends each put up $200 in the beginning. Should he just fill in the total initial investment here to reduce the company asset? If so, does he need to enter the $200 as some kind of investment in his asset? So, ultimately it does not matter? </p>
<p>Also, they had some unsold T-shirts. My wife and I are not impressed by those T-shirts at all. We doubt if the T-shirts can be sold at 1/2 of the cost. What would be the proper procedure to make some writedown or adjustment to the inventory?</p>