Individual 401(k) in LLC - how to book and report on 1065?

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Posted by volx on March 26, 2009, 10:20 am Please log in for more thread options An LLC is held jointly by a married couple. One of the spouses is a active partner and LLC member-manager; the other is a LLC member and passive. The passive partner receives guaranteed payments. The active partner has no guaranteed payments. (1) How to properly book individual 401(k) contributions made by the company on behalf of its members? I saw conflicting views: as general expense, or as guaranteed payment. If it is a guaranteed payment it will result in additional SE tax for passive partner. Since the amount of 401(k) contributions depends on income from self-employment it would create a recursive relationship. (2) The 401(k) contributions made by the company in 2008 but applied to 2007 (typical case if you contribute between Jan 1 and Apr 15) are company's expense for 2008 but can they be claimed as such? My understanding is that they can't, because they were already deducted on partners 2007 individual income tax returns. Putting them on 2008 schedule K-1 line 13, code R also does not appear right because the amounts reflect prior year contributions. How do I report them correctly? (3) Finally, the company made a contribution to one of the partners 401 (k) during 2008 toward FY2008. I am pretty sure that this amount should go on that partner's 2008 K-1 code R. Is that correct? Thanks in advance! -- << ------------------------------------------------------- >> << 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.         >> << ------------------------------------------------------- >> Posted by Steve Pope on March 26, 2009, 3:36 pm Please log in for more thread options >An LLC is held jointly by a married couple. One of the spouses is a >active partner and LLC member-manager; the other is a LLC member and >passive. The passive partner receives guaranteed payments. The active >partner has no guaranteed payments. >(1) How to properly book individual 401(k) contributions made by the >company on behalf of its members? I saw conflicting views: as general >expense, or as guaranteed payment. >If it is a guaranteed payment it will result in additional SE tax for >passive partner. If you can figure out how to defer compensation into a qualified plan without having paid SE tax on the entire compensation, I'm interested in how that can be made to happen. Steve -- << ------------------------------------------------------- >> << 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.         >> << ------------------------------------------------------- >> Posted by Gene E. Utterback, EA, RFC, AB on March 26, 2009, 5:40 pm Please log in for more thread options >>An LLC is held jointly by a married couple. One of the spouses is a >>active partner and LLC member-manager; the other is a LLC member and >>passive. The passive partner receives guaranteed payments. The active >>partner has no guaranteed payments. >>(1) How to properly book individual 401(k) contributions made by the >>company on behalf of its members? I saw conflicting views: as general >>expense, or as guaranteed payment. >>If it is a guaranteed payment it will result in additional SE tax for >>passive partner. > If you can figure out how to defer compensation into a qualified > plan without having paid SE tax on the entire compensation, > I'm interested in how that can be made to happen. > Steve I'm with Steve on this one! How or why on Earth would a passive member get guaranteed payments while the managing member gets none? Gene E. Utterback, EA, RFC, ABA -- << ------------------------------------------------------- >> << 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.         >> << ------------------------------------------------------- >> Posted by volx on March 26, 2009, 10:51 pm Please log in for more thread options On Mar 26, 5:40 pm, "Gene E. Utterback, EA, RFC, ABA" > >>An LLC is held jointly by a married couple. One of the spouses is a > >>active partner and LLC member-manager; the other is a LLC member and > >>passive. The passive partner receives guaranteed payments. The active > >>partner has no guaranteed payments. > >>(1) How to properly book individual 401(k) contributions made by the > >>company on behalf of its members? I saw conflicting views: as general > >>expense, or as guaranteed payment. > >>If it is a guaranteed payment it will result in additional SE tax for > >>passive partner. > > If you can figure out how to defer compensation into a qualified > > plan without having paid SE tax on the entire compensation, > > I'm interested in how that can be made to happen. > > Steve > I'm with Steve on this one! > How or why on Earth would a passive member get guaranteed payments while the > managing member gets none? > Gene E. Utterback, EA, RFC, ABA Managing partner pays SE income on its entire share of partnership profits whether he draws on capital or not. Do you know answer to my questions re 401(k)? -- << ------------------------------------------------------- >> << 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.         >> << ------------------------------------------------------- >> Posted by Gene E. Utterback, EA, RFC, AB on March 30, 2009, 2:51 pm Please log in for more thread options > On Mar 26, 5:40 pm, "Gene E. Utterback, EA, RFC, ABA" >> >> >> >> >> >> >>An LLC is held jointly by a married couple. One of the spouses is a >> >>active partner and LLC member-manager; the other is a LLC member and >> >>passive. The passive partner receives guaranteed payments. The active >> >>partner has no guaranteed payments. >> >> >>(1) How to properly book individual 401(k) contributions made by the >> >>company on behalf of its members? I saw conflicting views: as general >> >>expense, or as guaranteed payment. >> >> >>If it is a guaranteed payment it will result in additional SE tax for >> >>passive partner. >> >> > If you can figure out how to defer compensation into a qualified >> > plan without having paid SE tax on the entire compensation, >> > I'm interested in how that can be made to happen. >> >> > Steve >> >> I'm with Steve on this one! >> >> How or why on Earth would a passive member get guaranteed payments while >> the >> managing member gets none? >> >> Gene E. Utterback, EA, RFC, ABA > Managing partner pays SE income on its entire share of partnership > profits whether he draws on capital or not. Do you know answer to my > questions re 401(k)? SNIPPED Maybe - but I'm not sure because I don't have all of your information.  And you still have not answered my question - why does the passive partner get guaranteed payments?  Paying guaranteed payments may well mean that this person is NOT passive at all. With that caveat, payments into a company sponsored plan are on behalf of the partner or member and could very well be considered additional distributions to the member, to be taken on their personal return; Or they could be a company only paid contribution to the plan, with no impact on the member; Or they could be treated as guaranteed payments subject to additional SE tax. It depends on the intricacies of how the plan was set up and what all was being done and how it was being done. Quite frankly if you're doing this return you are in over your head.  Do NOT expect to get a definitive answer here.  Those of us who are pros who respond here do so as a courtesy with the caveat that the information you get from any of us is worth exactly what you paid for it - NOTHING. If you are a nontax professional I would suggest you get help from a tax pro right away.  If you are a tax pro I would say that you still need help from a professional experienced with such matters, you are foolish to rely solely on what you get here from anyone - ME INCLUDED (and there is no better tax pro than me! <G>).  Also, if you're a pro you need to be very careful here, doing work for which you do not have the requisite experience will endanger your ticket faster than just about anything else you can do. Get professional help on this, Gene E. Utterback, EA, RFC, ABA -- << ------------------------------------------------------- >> << 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.         >> << ------------------------------------------------------- >> This Thread        Yahoo!   Google   Windows Live   del.icio.us   digg   Netscape Individual 401(k) in LLC - how to book and report on 1065? volx 03-26-2009   Re: Individual 401(k) in LLC - how to book and re... Steve Pope 03-26-2009  Re: Individual 401(k) in LLC - how to book and rep... Gene E. Utterback, EA, RF... 03-26-2009  Re: Individual 401(k) in LLC - how to book and rep... volx 03-26-2009  Re: Individual 401(k) in LLC - how to book and rep... Gene E. Utterback, EA, RF... 03-30-2009   Re: Individual 401(k) in LLC - how to book and re... Steve Pope 03-31-2009 Related Posts Subject Date Book Royalties March 30, 2007, 3:18 am Notice: My 2nd crypto book finished :-) November 2, 2006, 11:47 pm Notice: My 2nd crypto book finished :-) November 2, 2006, 9:14 pm book advice for day trading/taxes June 5, 2007, 3:19 pm Individual 401(k) February 13, 2007, 1:49 am Individual healthinsurance December 31, 2006, 11:50 pm individual 401(k) in partnership February 6, 2007, 9:58 pm Partnership or Individual? March 29, 2005, 7:08 pm K1 1065 box 1 April 3, 2010, 8:35 pm Individual 401k for W-2 contractor December 15, 2007, 11:11 pm Fed. Gov. 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