Am I personally liable for taxes or is my former LLC responsible for the business income?

But what if the LLC was formed in February but I didn't get my name officially removed until like May? I'm guessing I'd need to file a K-1 for those months right? Also does it matter that ALL the money went to the LLC eventually even the stuff I earned in January?

Yes, if you were part of the LLC from February until May, you should receive a K-1 for that period showing your share of the LLC's profits or losses. The LLC should prorate the year's results to reflect just those months you were a member. Regarding the money earned in January, the timing of when you earned the income is what matters, not when you transferred it. Income earned while operating as a sole proprietor (before the LLC existed) is your personal income reportable on Schedule C, even if you later contributed those funds to the LLC. This would essentially be treated as your capital contribution to the new business.

Does it actually work with business transitions like this? I've got a somewhat similar situation where I went from sole prop to S-corp midyear but have been worried about getting the timing right for tax purposes.

I'm kinda skeptical... So you're saying it can distinguish between personal and business transactions automatically? How accurate is it really? My bank statements have hundreds of transactions and the business stuff is all mixed in.

It absolutely handles business transitions - that's exactly what I used it for. It lets you mark the dates when your business structure changed and properly categorizes income for each period. It saved me a huge headache with my midyear transition. As for accuracy with mixed transactions, I was impressed. The AI is trained to recognize typical business expenses and income patterns. It's not perfect (you'll need to review and make some adjustments), but it got about 85% right automatically for me. You can easily recategorize anything it misses, and it learns from your corrections. The time saved compared to manually going through hundreds of transactions was absolutely worth it.

So this is just a service that waits on hold with the IRS for you? How does that even work? Do they just call you when an agent finally picks up?

Yeah right, nobody gets through to the IRS that quickly. I've literally waited 3+ hours multiple times and still got disconnected. If this actually works I'd be shocked.

It works by using their system to navigate the IRS phone tree and wait in the queue for you. When an IRS agent comes on the line, you get a call connecting you directly to them. No more waiting on hold for hours. I was extremely skeptical too - I've spent countless hours trying to get through to the IRS myself. But it actually worked just like they claimed. They called me when an agent was on the line, and I was connected immediately. The 20 minute timeframe can vary depending on IRS call volume, but it beat my previous attempts by hours. Not having to stay glued to my phone waiting was a huge relief.

We didn't have a formal operating agreement, just a handshake deal. I basically walked away from the business with nothing because it wasn't doing that well and I wanted out. Does that change anything tax-wise?

That actually complicates things a bit. Even without a formal agreement, the IRS generally doesn't allow you to simply "walk away" from a business interest without tax consequences. When you gave up your ownership interest, that's technically a disposition of a capital asset. If the business had any value at all (even potential future value), you may need to report the transaction. Since you received no compensation, it could potentially be treated as a loss, but you'll need to establish the basis value of your investment in the LLC. I'd recommend talking to a tax professional about this specific situation. Without proper documentation of the transfer of ownership, you might face questions if audited about whether this was truly an arm's length transaction or if there were other compensations not reported.

This is a really important point. I got hit with a massive self-employment tax bill a few years ago because I didn't realize it was separate from regular income tax. Make sure you're setting aside around 30-35% of that early income for taxes (depending on your tax bracket).

That's such a good point about state taxes! I'm in California and totally forgot to consider how they might handle this differently. Do you know if there's an easy way to find out what my state's specific rules are? I don't want to get blindsided by a state tax bill on top of everything else I'm trying to figure out.

@Issac Nightingale For California specifically, you ll'want to check the FTB Franchise (Tax Board website) - they have guidance on business entity changes and LLC taxation. California treats LLCs as partnerships for tax purposes, so you d'likely need to file Form 565 for the LLC portion and report your share on your personal return. Since CA is a community property state, there might also be additional considerations if you re'married. I d'definitely recommend calling the FTB directly or consulting with a CA tax professional since the state rules can be quite different from federal, especially around the timing of when income gets attributed to different entities.