If a colleague and I form an LLC for a fitness training business (we previously were fitness trainers with our own clients), can we keep the old clients separate and not include those in LLC income? The LLC is taxed as an S-Corp. Would we need to report the income/expenses related to the old clients on our personal returns on Schedule C, separate from Schedule E for the LLC income/loss?

ANSWER

The BIDaWIZ Team's Answer:

Yes, you can technically have two separate businesses for tax and legal purposes. Yes, the sole proprietorship is treated as a disregarded entity and reported via Schedule C of your form 1040. The LLC taxed as an S Corp is an actual separate and distinct entity in which the income/expenses flows to Schedule E of your form 1040. You can have two separate businesses, but you need to ensure that everything is kept separate such as bank accounts, EINs, accounting records etc. This is referenced in IRS Publication 583 & IRC Section 162.