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Posted by Kelly on July 9, 2008, 6:41 pm
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Hi There,
My husband is a member of a 2 person LLC that is treated as a
partnership for tax purposes. Each member receives monthly guaranteed
payments. Additionally, the LLC was profitable and the profits were
passed through to each member on the K-1's. This passthrough created
a large tax bill for each member, even though they did not actually
recieve the profits in cash. We would ultimately like for the LLC to
reimburse the members for the tax that they incurred due to profits
and potentially the portion of the SE taxes that would normally be
paid by an employer on behalf of an employee. I would greatly
appreciate any suggestions on how this could be handled? Is this
something that is standard practice? Would the payment of taxes be an
distribution to the members? Would the LLC then take a deduction for
taxes paid?
Thanks in Advance,
Kelly
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Posted by Katie on July 9, 2008, 7:28 pm
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> Hi There,
>
> My husband is a member of a 2 person LLC that is treated as a
> partnership for tax purposes. Each member receives monthly guaranteed
> payments. Additionally, the LLC was profitable and the profits were
> passed through to each member on the K-1's. This passthrough created
> a large tax bill for each member, even though they did not actually
> recieve the profits in cash. We would ultimately like for the LLC to
> reimburse the members for the tax that they incurred due to profits
> and potentially the portion of the SE taxes that would normally be
> paid by an employer on behalf of an employee. I would greatly
> appreciate any suggestions on how this could be handled? Is this
> something that is standard practice? Would the payment of taxes be an
> distribution to the members? Would the LLC then take a deduction for
> taxes paid?
>
> Thanks in Advance,
>
> Kelly
The LLC can certainly make a cash distribution to the members to cover
the tax liabilities they incurred. Profitable partnerships and S
corporations often distribute enough cash to their owners to cover
their individual income tax liabilities. The distribution would be
just that, and would have no tax effect to either the LLC or the
members, apart from reducing the members' basis in the LLC.
Katie in San Diego
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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Bill Brown on July 9, 2008, 11:01 pm
Please log in for more thread options > The LLC can certainly make a cash distribution to the members to cover
> the tax liabilities they incurred. Profitable partnerships and S
> corporations often distribute enough cash to their owners to cover
> their individual income tax liabilities. The distribution would be
> just that, and would have no tax effect to either the LLC or the
> members, apart from reducing the members' basis in the LLC.
>
When Katie says, "no tax effect to ... the LLC," she means the LLC
does not report a deductible expense for this distribution. There is
no tax deduction for anyone for the payment of federal income taxes.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Katie on July 9, 2008, 11:22 pm
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> > The LLC can certainly make a cash distribution to the members to cover
> > the tax liabilities they incurred. Profitable partnerships and S
> > corporations often distribute enough cash to their owners to cover
> > their individual income tax liabilities. The distribution would be
> > just that, and would have no tax effect to either the LLC or the
> > members, apart from reducing the members' basis in the LLC.
>
> When Katie says, "no tax effect to ... the LLC," she means the LLC
> does not report a deductible expense for this distribution. There is
> no tax deduction for anyone for the payment of federal income taxes.
>
Right, Bill, thanks for the clarification.
Katie
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Kelly on July 10, 2008, 12:03 am
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>
> > > The LLC can certainly make a cash distribution to the members to cover
> > > the tax liabilities they incurred. Profitable partnerships and S
> > > corporations often distribute enough cash to their owners to cover
> > > their individual income tax liabilities. The distribution would be
> > > just that, and would have no tax effect to either the LLC or the
> > > members, apart from reducing the members' basis in the LLC.
>
> > When Katie says, "no tax effect to ... the LLC," she means the LLC
> > does not report a deductible expense for this distribution. There is
> > no tax deduction for anyone for the payment of federal income taxes.
>
> Right, Bill, thanks for the clarification.
>
> Katie
Thanks Bill and Katie -
Is the distribution taxable to the members? Is it reported on the
K-1's?
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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