LLC (Partnership) Tax Questions


D

dickens

Hello,

Myself and two other business partners have formed an LLC.
All three of us will be managing members splitting all
profits and losses equally. We have no employees. I've
researched a ton on the net and haven't been able to come up
with concrete answers for these questions:

1.) Do LLC members have to draw a regular salary throughout
the year (not talking about guaranteed payments or lease/
loan payments to members from the LLC), just a simple salary
like you get from your 9-5 job? If so, I hear the term
"reasonable salary" - please define.

2.) If #1 is yes you do have to draw a salary, is this
regular salary taxed the same as "Pass Through"
Profits/Losses distributed at the end of the fiscal year,
meaning that both regular salary and distributions are taxed
only by self employment taxes? If #2 is yes they are taxed
the same why would you have to take a salary if the tax end
results in paying the same amount of taxes.

3.) If LLC's don't have to pay a regular salary to it's
members and if all three members of the LLC perform duties
which could qualify for guaranteed payments, do we
absolutely have pay distributed payments or can we elect not
to receive distributed payments and elect to take
profits/losses solely during year end distribution of
profits/losses.

(Please keep in mind this question is under the scope of
federal taxes, I know states have their own little caveat's
here. I am going to also consult a tax consultant on this
issue as well; I am just trying to get as much info as
possible before inevitably hiring a CPA. FYI I also am
aware that salaries go in to operating expenses and
therefore lower net income so I see the advantages of
actually paying a salary, I just want to know what is
mandatory.).

Thanks,

Joe
 
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S

Stuart A. Bronstein

dickens said:
Myself and two other business partners have formed an LLC.
All three of us will be managing members splitting all
profits and losses equally. We have no employees. I've
researched a ton on the net and haven't been able to come up
with concrete answers for these questions:

1.) Do LLC members have to draw a regular salary throughout
the year (not talking about guaranteed payments or lease/
loan payments to members from the LLC), just a simple salary
like you get from your 9-5 job? If so, I hear the term
"reasonable salary" - please define.
An LLC is transparent for tax purposes. In other words the
Internal Revenue Code doesn't recognize them. So LLC's
elect to be taxed either as a partnership or as a
corporation (including an S-corporation).

When you elect to be taxed as a partnership, the partnership
rules apply. When you elect to be taxed as a corporation,
the corporation rules apply.

Stu
 
Last edited by a moderator:
D

Drew Edmundson

An LLC is transparent for tax purposes. In other words the
Internal Revenue Code doesn't recognize them. So LLC's
elect to be taxed either as a partnership or as a
corporation (including an S-corporation).

When you elect to be taxed as a partnership, the partnership
rules apply. When you elect to be taxed as a corporation,
the corporation rules apply.
IRS does recognize the limited liability feature of LLCs.
The limited liability can limit loss deductions via the At
Risk rules and due to lower basis when compared to a plain
vanilla general partnership.
 
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Stuart A. Bronstein

Drew Edmundson said:
IRS does recognize the limited liability feature of LLCs.
The limited liability can limit loss deductions via the At
Risk rules and due to lower basis when compared to a plain
vanilla general partnership.
Interesting point. I hadn't thought of that, but it makes
lots of sense. Just like for a limited partnership.

Stu
 
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