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Tax on federal grant given to sole proprietorship that changed to LLC

Forum|Forum|1 year ago
May 29, 2024
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Hello, I changed my business from a sole proprietorship to a single-member LLC in 2024 in California. In 2024, I received a federal grant for my work, which was given to me, using my personal social security number. I am moving the federal grant funds from a personal banking account (sole proprietorship) to a business account (for the LLC). I received an EIN for the LLC.

How do I file taxes in 2025? Is this federal grant taxed just once? Will the Turbotax software guide me through this process when I file taxes next year? Thank you.

Ask the Experts - W-4 II - May 2024

Best answer by Andrew_W

From a tax perspective, a sole-proprietorship and a Single-Member LLC (SMLLC) are treated the same. Both are reported on Schedule C on your personal return, and TurboTax handles the business entries for this the same way, as self-employment income. When entering the business information, there is options to indicate that the business is a LLC and to enter the EIN. If you carryover your business information from your 2023 return, this section would just need to be updated to indicate that it is a LLC and to enter the EIN.

Your grant should be reported as business income, reported on Schedule C. Since a SMLLC is treated the same as a sole-proprietorship, it is not taxed twice.

One thing to watch for in California with a LLC - California Form 568, Limited Liability Company Return of Income, must be filed along with your personal return. TurboTax can handle this form, it may generate automatically when you indicate that the business is a LLC, or can be prompted manually. Expert @PatriciaV wrote a handy guide for this here: https://ttlc.intuit.com/community/taxes/discussion/re-where-is-california-tax-form-568-in-turbo-tax-home-business-tthb/01/3335639/highlight/true#M1228866

Andrew_WAnswer

From a tax perspective, a sole-proprietorship and a Single-Member LLC (SMLLC) are treated the same. Both are reported on Schedule C on your personal return, and TurboTax handles the business entries for this the same way, as self-employment income. When entering the business information, there is options to indicate that the business is a LLC and to enter the EIN. If you carryover your business information from your 2023 return, this section would just need to be updated to indicate that it is a LLC and to enter the EIN.

Your grant should be reported as business income, reported on Schedule C. Since a SMLLC is treated the same as a sole-proprietorship, it is not taxed twice.

One thing to watch for in California with a LLC - California Form 568, Limited Liability Company Return of Income, must be filed along with your personal return. TurboTax can handle this form, it may generate automatically when you indicate that the business is a LLC, or can be prompted manually. Expert @PatriciaV wrote a handy guide for this here: https://ttlc.intuit.com/community/taxes/discussion/re-where-is-california-tax-form-568-in-turbo-tax-home-business-tthb/01/3335639/highlight/true#M1228866

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