USA Three Member LLC, one is an investor...

[steveknarf]

Situation:
- Three partners; two that operate the business, one is remote investor. Manager managed LLC, each at 33.3% ownership.
- The two operators will be compensated by salary/guaranteed payments
- Remote partner/investor will receive priority payments on initial investment until made whole.
- At that point, profits will be shared according to the 33.3%

We thought this was cool, until the investor realized they need to pay taxes on re-payments. :\

1) We messed up?
2) How do we fix this?... what is the correct business structure to best accommodate?
3) Or the best agreement within the current structure to suffice?

Help.

 

[DrStrangeLove]

How is the LLC currently being taxed, as a partnership, an S corp or as a C corp?

Is the LLC managing rental property?

 

[steveknarf]

partnership, and no

 

[Business2122]

Situation:
- Three partners; two that operate the business, one is remote investor. Manager managed LLC, each at 33.3% ownership.
- The two operators will be compensated by salary/guaranteed payments
- Remote partner/investor will receive priority payments on initial investment until made whole.
- At that point, profits will be shared according to the 33.3%

We thought this was cool, until the investor realized they need to pay taxes on re-payments. :\

1) We messed up?
2) How do we fix this?... what is the correct business structure to best accommodate?
3) Or the best agreement within the current structure to suffice?

Help.

You’ll 1st need to create a parent LLC to your managed LLC

Then you’ll need to elect that parent LLC to be tax as a Scorp

Once you do that add all three owners to the parent and then declare the two owners salaries as salaries (expenses) and the passive investor’s income as interest payments (Expenses)

Once you’ve done that there’s a deduction route the investor can take to defer the taxes due on the interest paid