Hello,
my father owns an LLC. He and my mom are the only owners. when they pass, 3 children will be owners. the LLC has royalties from several states. how will taxes be handled?? will each sibling need to file taxes in each state that royalties are located, or will this somehow be handled by the LLC?
a related question. how will property taxes be handled on the minerals.
thank you
Don’t worry, those states will tax you and the IRS too! Just kinda joking, but try to plan ahead if you can. Getting 3 people on the same page is not easy sometimes. Especially if you get your families spouse’s involved! But maybe a good problem to have.
You should consult your parents’ or your CPA for best advice. Generally, LLC owned by 3 children will need to file federal tax returns and state tax returns as appropriate. Assets would be owned in name of LLC and it will pay property taxes. Owners will receive K-1 with income detail for their personal returns, both federal and state. As mineral title is in name of LLC, no probate required upon death of parents. Royalties will continue to be paid in name of LLC. However, if LLC is currently being treated as disregarded entity under IRS rules, then it may be using individual social security number with oil companies instead of federal ID number and that will need to change. Be sure that your parents are maintaining of real estate, division orders, leases, tax data etc. to help,u]you in the future.
this is what I was thinking. so children will use K-1 to file state taxes. in other words, the LLC is not filing the taxes - they are passing through to the kiddos.
do I understand correctly?
David: Every LLC is set up differently and is subject to the Operating Agreement. You need to get assistance from an attorney or CPA that can review the controlling documents to get the answers that you are looking for.
The owners / members will be responsible for record-keeping, filing the LLC tax return, LLC bank account, making distributions, etc. SImilar to what is necessary for individual minerals owners. They will have to agree on how to manage the LLC. Todd is correct that you need to consult with the attorney or CPA to make sure that this is all done correctly.
My family did an LLC when we learned we were getting an oil well. When the checks coming in were pretty small, it wasn’t a problem, now that the checks have grown, we got an unpleasant surprise. We knew the taxes trickled down to us, but we were not ready to be put in a whole new tax bracket. My sister who is retired and drawing social security, had to pay in $8000 this year. I, myself, making less than $45,000 a year, with a kid in college, even had to pay in. It’s seems that all we will be doing is paying taxes on money we can’t spend, but saving it doesn’t help us either. You are taxed on the profit of the royalties and since it’s oil/gas, there is little to no write offs. If it keeps getting worse, we have talked about selling the whole kit and kaboodle and live off of what we get. The govt gets you coming and going.
What a terrible position to be in. The top tax bracket is 37%. You are ungrateful that you get to keep 63% of a found treasure. Here’s an idea for you. Give that 63% to your church, synagogue or local charity and you have a sweet deduction that will solve your perceived problem.
If you have income. It will be taxed regardless as to source - job or interest or rent or royalties etc. A LLC is a pass-through entity and taxes are paid by the members. If you had used a corporation, then it would have to pay income taxes and any distributions would be taxed to you as dividend income. Presumably the LLC is making distributions of the income to the members and you should be making quarterly estimated tax payments. That would leave you with the remaining income to save or to spend. Also, tax rates are graduated and so some income is taxed at lower rates and only part of the income is taxed at a higher rate. When you sell, you will pay capital gains on the increased value of the assets.
TennisDaze
Thank you very much. That answered my question. So it’s a pass through which means each member files and pays their own state taxes.
The LLC interests will be subject to probate unless held in a revocable trust or unless the company agreement allows an owner to pass interests under a beneficiary designation form and the owner executes such a form/
Thanks Todd! Your thoughtful insight really helped!
Buy a farm or ranch and you will have plenty of legal deductions!
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