LLC (Partnership) Tax Questions

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Subject Author Date LLC (Partnership) Tax Questions dickens 11-07-2006  Re: LLC (Partnership) Tax Questions Stuart A. Bronstein 11-08-2006  Re: LLC (Partnership) Tax Questions Drew Edmundson 11-10-2006  Re: LLC (Partnership) Tax Questions Stuart A. Bronstein 11-10-2006
Posted by dickens on November 7, 2006, 8:19 am Please log in for more thread options 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 << ======================================================= >> << 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 (2006) - All rights reserved. >> << ======================================================= >> Posted by Stuart A. Bronstein on November 8, 2006, 2:44 am Please log in for more thread options > 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 << ======================================================= >> << 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 (2006) - All rights reserved. >> << ======================================================= >> Posted by Drew Edmundson on November 10, 2006, 2:21 am Please log in for more thread options >> 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. 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. --- Drew Edmundson, CPA Cary, NC << ======================================================= >> << 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 (2006) - All rights reserved. >> << ======================================================= >> Posted by Stuart A. Bronstein on November 10, 2006, 5:29 pm Please log in for more thread options > 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 << ======================================================= >> << 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 (2006) - All rights reserved. >> << ======================================================= >> Similar Threads Posted Partnership K-1 January 4, 2007, 8:54 pm new partnership April 12, 2007, 12:25 am individual 401(k) in partnership February 6, 2007, 9:58 pm Reporting of partnership February 27, 2007, 4:14 pm LLC taxation as a partnership May 29, 2007, 10:45 pm Re: LLC taxation as a partnership June 12, 2007, 1:07 am Re: LLC taxation as a partnership June 21, 2007, 5:44 pm Partnership Distribution - Not on K-1 October 8, 2007, 6:43 pm Re: Partnership Distribution - Not on K-1 October 9, 2007, 8:28 pm Do I have to file Partnership K-1 ? 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