Member (non-managing) of a LLC and Personal State Taxes

[bcmem]

Jurisdiction

Tennessee

I am planning to invest in startups via Crowdfunding Portals (Reg CF and A+.) Some of the offerings are for actual memberships in multi-member LLC's. These memberships would be non-managing and have no voting rights (unless otherwise required by law.) I think I understand the Federal income tax part fine. I believe Tenn. has no income tax for LLC pass-through income as it would not be classified as a dividend. However, I am trying to figure out are these investments going to make me have to file income tax returns in multiple states. As these will be small investments (say $500), the combination of tax return preparation fees (like for TurboTax) and the complexity, may outweigh the investment return.

Can anyone weigh in on the general question of me having to file State Income Tax returns? Most of these investment opportunites are films and theater productions but some are manufactuers. Thanks!

 

[adjusterjack]

Can anyone weigh in on the general question of me having to file State Income Tax returns?

I dunno, it's obvious to me that if I wanted to know if I had to file a tax return for any state that has a personal income tax I would go to that state's income tax website to find out.

Without knowing which state that you MIGHT generate earnings in, it's impossible to answer your "general question."

 

[bcmem]

I dunno, it's obvious to me that if I wanted to know if I had to file a tax return for any state that has a personal income tax I would go to that state's income tax website to find out.

Without knowing which state that you MIGHT generate earnings in, it's impossible to answer your "general question."

Let me try to clarify. I have never had to deal with this before. I have no clue how one even becomes liable to file/pay state income tax when you are a non-managing member of a LLC. How am I informed? As I am not talking about the LLC's tax returns but my own, the individual state websites are not going to help me. I'm not talking about franchise taxes, etc. Obviously if a state does not have income tax, then it's moot.

 

[army judge]

Most people who invest in "crowd funding SCAMS" don't have to worry about income as much as they about being fleeced.

 

[bcmem]

Most people who invest in "crowd funding SCAMS" don't have to worry about income as much as they about being fleeced.

Thanks for taking the time to waste my time. Posts like this are always very helpful.

 

[adjusterjack]

How am I informed? As I am not talking about the LLC's tax returns but my own, the individual state websites are not going to help me.

Yes, they will. They will tell you if, as a non-resident, you have to pay income taxes on money earned within that state.

For example, on Page 2 of the Arizona income tax booklet it says:

Nonresidents
If you are a nonresident, you must file Arizona Form 140NR Nonresident Personal Income Tax.

https://azdor.gov/file/4679/download?token=pgYLxACg

I can almost guarantee that any state with an income tax will do something similar. You just have to look it up.

 

[bcmem]

@ajdusterjack: Thanks! So will the LLC send me something like the Federal K-1 for each state where I might have to report income?

 

[army judge]

Thanks for taking the time to waste my time. Posts like this are always very helpful.

I wasn't responding to you.
I was posting a thought on a forum open to the public.
Thanks for noticing me, even when I go to great lengths to be ignored.
My wife tells me my posts are too powerful for most people, which is why I avoid posting directly to others.

Sigh, my amazing wife was right again.

 

[Tax Counsel]

@ajdusterjack: Thanks! So will the LLC send me something like the Federal K-1 for each state where I might have to report income?

That depends on the tax laws of each state in which the LLC operates as well as the state in which the LLC is organized. Similarly whether you are required to file and pay tax in any given state will depend on the details of your investment in the LLC and the laws of the state involved. Unfortunately what that means is that I can't give you a nice one sentence answer on whether you must file and pay tax for these crowdfunding investments. But very generally if the income of the LLC is passed through to you then typically the states in which the LLC operates will want you to file and pay tax on that (assuming the state has an income tax, of course). This one of the drawbacks to operating in partnership form in a business that may operate in a state other than your home state and especially if the LLC is getting income from more than one state. Some states might have some minimum you have to make before they tax it or may have other exclusions or exemptions that would benefit you. The bottom line though is that for each investment you need to look at the details of it and the applicable state laws to determine your tax responsibilities. For very small investments even doing the work to ferret that information out may simply not be worthwhile.