Revocable Trust wholly owns LLC with Amazon FBA business - Should income be reported on 1040 Schedule C or 1065 partnership return?

You've got a chain of disregarded entities here, which actually simplifies your situation. Since your Revocable Trust is a grantor trust, it's disregarded for tax purposes - meaning you and your wife are considered the owners of whatever the trust owns. And since the LLC is wholly owned by the trust, the LLC is also disregarded. For tax reporting purposes, you'd report the Amazon FBA business income on Schedule C of your 1040. But here's the important part - you'll need to determine who the "true" operator of the business is. If only one spouse materially participates in the business, then only that spouse files a Schedule C. If both of you materially participate, then you'd generally file two Schedule Cs, splitting the income according to your respective participation. The "non-community property state" factor would matter if you and your wife directly owned the LLC together. But since the LLC is owned by the trust, this isn't relevant to your filing method - what matters is who's doing the work in the business. Remember to include a statement with your tax return noting the chain of disregarded entities (from the trust to the LLC to you) for clarity.

I went through something similar with my trust and Amazon business last year. I found taxr.ai (https://taxr.ai) super helpful for clarifying my structure. I uploaded my trust documents and LLC paperwork, and their analysis showed I was overthinking it - confirmed it was just Schedule C filing for me. Their document review helped me understand that the "chain of disregarded entities" concept was exactly what applied to my situation, just like yours. The best part was they explained how the IRS looks at the substance of who's controlling the business, not just the legal forms. For revocable trusts, that's always the grantors. Saved me from filing an unnecessary 1065 and all the extra K-1 complications.

Just wanted to update after using taxr.ai that was mentioned above. I was initially just browsing for answers but decided to try it with my own documents. My situation was almost identical - revocable trust owning an LLC with an e-commerce business. The analysis confirmed we should file two Schedule Cs rather than a 1065, and explained exactly WHY the multi-member LLC rules didn't apply in our case. The report even included citations to the relevant IRS regulations about disregarded entities through grantor trusts that I could attach to my return as documentation. My accountant was actually impressed with how thorough the explanation was, especially regarding the material participation standards for my wife and me. Ended up saving us the extra cost of partnership return preparation while giving us confidence our filing position was solid.

Before you go too far down the Schedule C path, let me share what happened when I was in your exact situation. I spent 3 weeks trying to get someone at the IRS to clarify this exact question for me. Endless phone trees, disconnects, and conflicting information. Then I found Claimyr (https://claimyr.com) and their service got me connected to an actual IRS agent in under 20 minutes. They have this system that navigates the IRS phone maze for you, then calls you when an agent is ready. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed that in a revocable trust/LLC structure like yours, where the LLC is wholly owned by the trust, you do indeed report on Schedule C(s). She explained that despite being in a non-community property state, the LLC ownership comes through the trust, not directly through you and your spouse as individuals. This confirmation directly from the IRS gave me peace of mind with our filing position.

I need to eat my words from yesterday. After getting disconnected four times trying to reach the IRS this morning about my own tax situation, I broke down and tried that Claimyr service. I was absolutely convinced it wouldn't work, but I was desperate. Less than 25 minutes later, I was talking to an actual IRS representative who confirmed exactly what others have said here - with a revocable trust owning an LLC, the business income should be reported on Schedule C(s) based on material participation of each spouse. The agent even referenced the exact sections of the tax code that applied to my situation. I'm still shocked it actually worked. Turns out the system just automates the phone tree navigation and hold process, which is why it works. Definitely beats the 3+ hours I wasted yesterday trying to get through.

Just wanted to add my two cents as someone who's been using the trust/LLC structure for several Amazon businesses for years. The "chain of disregarded entities" explanation from earlier comments is correct. Here's how I handle it on my returns: 1. I include a statement with my 1040 explaining the structure 2. I file two Schedule Cs (one for each spouse) since we both work in the business 3. I make sure to include the LLC's EIN on both Schedule Cs (even though it's disregarded) 4. I title the Schedule C business name as "[My Name] SOLE PROP DBA [LLC Name]" I've been audited once, and this approach was accepted without issue. The key is documentation and consistency. If you're still uncertain, check out Revenue Ruling 2004-77, which specifically addresses disregarded entities in situations like yours.

Has anyone considered that Rev. Proc. 2002-69 might apply here? It specifically addresses situations where husband and wife own an entity through a living trust.