Discussion:LLC tax question on SS and Medicare
From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.
From TaxAlmanac
Discussion Forum Index --> Tax Questions --> LLC tax question on SS and Medicare
| 27 December 2006 | |
| We have an LLC (myself and 4 other members). We do not have a salary but split the money that the company makes as a distribution. The question I have is... Do we need to pay Social Security and Medicare taxes on the distribution? Is that done on the SE form for our end of the year taxes? We are pretty new to all this, thanks in advance. | |
| 27 December 2006 | |
| That depends on the type of LLC you formed Spr. If you are taxed as a partnership, then the partnership income DOES generate self employment taxes because you are self employed. If you are taxed as a corporation, then you should be taking a reasonable salary if you perform services for the corporation and for the other monies distributed from the corporation are not subject to self employment taxes. | |
Death&Taxes (talk|edits) said: | 27 December 2006 |
| This must be one of the most discussed issues on this board. Discussion: SE tax for LLC member is just one. The gist of many of these is how to limit SE Tax exposure thru use of guaranteed payments. Board contributor JR will surely chime in soon to give you more guidance. | |
| 27 December 2006 | |
| We are a partnership and at this time are just trying to make sure we do the right thing with the taxes. At this time I dont think any of the partners are trying to limit the SE tax exposure - we have been told this is the easy way to go. Maybe next year we will try to limit that exposure. | |
| 27 December 2006 | |
| Hi you cannt "limit" your S/E exposure by just taking gauranteed payments. What your share of earnings (as opposed to distributions) are will be subject to S/E as reported on your K-1. Get an accountant now for 2006. bye | |
| December 27, 2006 | |
| Guaranteed payments are automatically subject to SE, and for 07, that's the way I'd go in order to establish reasonable 'wages' for each partner. I'd suggest consistency in how you each treat this on your 1040's. If one guy plays lotto and declares nothing for SE, and one's an engineer and puts it all in for SE, and the next guy is in-between, IRS will have fun picking the one they like most. As Wes said, get some help. Now. | |
| 27 December 2006 | |
| JR, aren't you the one who has said that by paying guaranteed payments (all subject to SE tax) keeps the rest of the income not subject to SE tax? I thought I had read this in a previous discussion and asked if someone would confirm this. I had not heard of doing this before that discussion, but it looks like Wes does not agree. Does anyone do this? Have questions ever been raised? Any precedent for doing so? Thank you. | |
| December 27, 2006 | |
| I have suggested that. I don't have a lot of LLC's but it seems that some consistency in the pro community would be helpful in establishing some reasonable brightlines, before someone else does it for us. My only concern above was if all these partners without the same accountant would be all over the board with how they treated this. And I don't disagree with Wes, he's merely saying that what you take for SE is up for grabs right now, and just taking the GP's won't solve the whole problem, esp. if they're too low. | |
| 27 December 2006 | |
| Hi as far as I am concerned all income from a T or B to a participating member working in the LLC is subject to S/E tax. GPs are only a means to compensate one member more than another not based on the P&L %s. It is very difficult to treat otherwise and involves a correctly drafted partnership agreement, different partnership interests aka gen vs ltd etc. Others may take exception to my "conservative" approach but I have always loved a good banter. bye | |
| 17 January 2007 | |
For an LLC taxed as a partnership, you follow the partnership rules.
1) Guaranteed payments are subject to SE 2) The General Partner's share of business income is subject to SE. 3) A passive investor's Limited Partnership interest's share of business income is NOT subject to SE. | |
| 17 January 2007 | |
| They would be called a general member
If they are taxed as a partnership, YES. What some do is have a corporation be a general member/general partner, others be limited members/limited partners. | |
| January 17, 2007 | |
| Welllll, technically Kevin, no, they don't. It can be member run, tho' one will generally be considered the managing member. But as an LLC, definitionally, they are still limited liability members. Extensive thread on this recently...would be intriguing to get your input considering all your credentials... | |
| 17 January 2007 | |
| JR1, I guess my use of the term "general partner" may be misleading as the term doesn't track exactly over into the LLC world. In a partnership, the GP has unlimited liability. You are right, in an LLC, all members have limited liability. | |
| 17 January 2007 | |
| I am going to the text that I have just taught from (although I didn't write the text, and would have to search further for the Reg or Code sections to prove anything to the satisfaction of most of us on this board), and in the handy-dandy table of comparison of entity types, for Self-Employment Tax: Sole Proprietorship - YES, Partnership - Yes for general partners, no for limited partners; C Corp - No, but wages subject to FICA; S-Corp No, wages subject to FICA; LLC - Depends on tax status as sole proprietorship, partnership, or corporation. | |
To join in on this discussion, you must first
log in.
