ed wrote:

- quote -

Subject to tax, but not to withholding. Although I've seen
quite a few LLCs whose members got W-2s. There's a lot of
wrong treatment related to payroll tax stuff, regardless of
entity.

Phoebe

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ed" <edcosoft[at]sbcglobal.net> wrote:
- quote -

No, a partner (or LLC member) is a partner, not an employee.
Partners cannot be treated as employees for withholding
purposes. The guaranteed payments are still reported on the
K-1, not a W-2. The guaranteed payments are deducted on a
separate line on the 1065 and allocated to individual
partners on K-1s. These payments do not show up anywhere on
the 941s. Thus, there is no withholding!

There is an exception to this rule but it doesn't apply to
most partnerships. Only large national or international CPA
and law firms can take advantage of the exception. If a
partner's interest in a partnership is less than 2%, he/she
can be treated as an employee and have taxes withheld from
guaranteed payments.

The partner is still liable for both income and SS tax but
figures these on his personal return. As such, he is
subject to making quarterly estimated tax payments.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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L K Williams <l...[at]loxinfo.co.th> wrote:
- quote -

Lanny: Are not guaranteed payments to partners for their
services to the partnership subject to SS tax and
withholding as employees?

ed

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"ed" <edcosoft[at]sbcglobal.net> wrote:
- quote -

Generally, I agree with what you say Ed, but this quoted
part has an error. Paying the guaranteed salary this way
will not work. Remember, OP is a member of an LLC taxed as a
partnership. As such, he cannot be treated as an employee
-- even for guaranteed payments, unless he is less that a 2%
partner! Thus, there can be no withholding to avoid the
underpayment penalties. This would work for an employee but
not for a partner.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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"dickens" <joesei...[at]gmail.com> wrote:

- quote -

Paying guaranteed salaries is optional

- quote -

Yes and No. Your only transactions can be a distribution of
the profits, but that doesn't escape the members' obligation
to pay estimated taxes on the profits as earned each tax
quarter if you are using the 2210 AI Annualized Income
Method to compute any underpayment, or 1/4 of 90% of current
year taxes.

- quote -

The need for paying Estimated Taxes is based on your prior
year's tax, or 90% of your current years final actual tax,
or annualizing actual income each quarter. If you are
trying to avoid paying quarterly estimates, pay a guaranteed
salary in December sufficient to Withhold enough to satisfy
either the 100% (or 110%) of last year's tax or 90% of
current year's tax, (or within $1,000 of it). Then no
estimates would be required regardless of the amount of
profit or when it occurred.

ed

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I've recently created an LLC and have been researching
Guaranteed Payments, Member Draws, and EOY Member
Distributions and found conflicting data.

1) Does an multi member LLC defaulting to be taxed as a
partnership HAVE to pay a reasonable salary (in the form of
a guaranteed payment) to it's active members? I know a
member of an LLC taxed as a partnership is not an employee,
therefore does not receive a W-2 which confuses when people
state a reasonable salary must be payed to the members. The
members of our LLC don't want to be paid a salary, we are
all satisfied with taking our cut at the end of the year as
we all have an equal workload within the company.

2) If a "reasonable salary" is not MANDATORY and no
Guaranteed Payments were made to members, can the only
financial transaction from the LLC to the members be the
distribution all profits/losses at the end of the fiscal
year to avoid the concept of paying estimated tax payments
to the IRS. Or do we wind up paying estimated taxes anyways
on the member distribution estimations for the next year?

3) If I am required to pay estimated taxes due the answer to
question 2 above, (We formed the LLC in '06 we are still
inactive and may well be active all of '07. Will definetely
be operational by '08), would i have to start making
estimated payments in '08 or '09.

Thanks

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