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03 - Accounting & Taxes Accounting Help & Tax Strategies

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  #1  
Old 12-27-2005, 07:18 PM
zales1277 zales1277 is offline
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Default LLC questions

We have formed a 4 person LLC. Only one member takes a draw. He needs a set amount weekly. Do I give him a check for what he needs his draw to be, plus taxes for him to set aside, or just his draw and the company can pay the taxes. Do all members pay self employment taxes on the profits and how do any draws figure in on it all. One member will probably be passive, does she still pay self employment taxes? How do we figure out the quarterly taxes. Are they paid for individually, or by company? As you can tell, we really don't know what we are doing. I've searched some books, and called a tax person, but....
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Old 12-27-2005, 09:41 PM
OldJack
 
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Quote:
Originally Posted by cowsrout
We have formed a 4 person LLC. Only one member takes a draw. He needs a set amount weekly. Do I give him a check for what he needs his draw to be, plus taxes for him to set aside, or just his draw and the company can pay the taxes.
A 4 person LLC by default files tax form 1065 and follows the tax rules of a partnership. A partnership does not pay any taxes except for employee payroll type taxes. A partner (LLC member) is never treated as an employee and must pay his own taxes (including the taxes on his share of the LLC profit).

I assume the person getting the weekly draw (regular check) is because he earns it and that it is not a part of his one-forth profits? If he still is to get his one-forth share of profits then the draw would be called a "guaranteed payment" on the tax return and subject to SE (self-employment) tax as well as income tax.

If it is to be just a draw from profits it is still subject to SE tax but is a draw against his one-forth profits at the end of the year.

Profit draws and guaranteed payments are NOT treated as payroll with withholding taxes. Each partner pays their own taxes, with their own money, by quarterly forms 1040ES.

Quote:
Originally Posted by cowsrout
Do all members pay self employment taxes on the profits and how do any draws figure in on it all. One member will probably be passive, does she still pay self employment taxes?
The default is that all members pay self-employment tax on their share of profit, however, there is an exception if a member meets certain passive participation rules. Your CPA can help you determine if the rules are met.

Quote:
Originally Posted by cowsrout
How do we figure out the quarterly taxes. Are they paid for individually, or by company? As you can tell, we really don't know what we are doing. I've searched some books, and called a tax person, but....
Federal taxes are paid on the LLC profit each year by each individual reporting their share of LLC income on their 1040 tax return. You need a tax person that know more than preparation of individual taxes as partnership business taxes get quite complicated.
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Old 12-27-2005, 10:40 PM
zales1277 zales1277 is offline
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Default LLC questions

Thank you, I've been reading through all these posts, and trying to take in all the information helpful to my situation. The LLC is two couples. Mom & Dad, Son & daughter-in law. Son needs to draw a weekly check, with a guaranteed amount. He does work full time, electrician, and is keeping this thing going. This is considered a guaranteed payment, against profits, correct? What is the difference in a guaranteed payment and a draw? The daughter in law has another job, and so won't put in many if any hours. The Dad will work part time, after his regular day job. I, Mom, will put in a few hours a week on "office" stuff. We would like to be able to some how "cover" the kids tax lliability so the money could be set aside for them already. We thought maybe money could be set aside, as if you were a regular employee on a payroll. He wants a draw big enough to cover taxes, but we aren't sure that is the way to go. I think I understand that he gets his draw, reports it on his 1065, and then adds to the total any other profits of the LLC - equal to his "onwnership". Which is what the rest of us do also.
You are very helpful and I appreciate your input, thanks for putting up with all of us just learning and wading through all of this.
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Old 12-27-2005, 10:48 PM
zales1277 zales1277 is offline
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Sorry, I've read so much tonight. I see where you already explained the difference in the draw and the guaranteed payment. If someone does not take a guaranteed payment or a draw, do you still pay quarterly payments to Uncle Sam? I've learned alot tonight, but have to decipher it all. Thank you again.
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  #5  
Old 12-28-2005, 08:40 AM
OldJack
 
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Yes... it is the profit before member/partner draws that is taxable on each member/partner's tax return and not what money they take out of the business. Each person (couple) must pay their personal income taxes after including their share of profit on their tax return regardless if they take any money out of the business. Since the taxes are not being paid by withholding you are required to make quarterly estimated tax payments if you will owe more than $1,000 when you file your joint 1040 income tax return. If you owe more than $1,000 on your 1040 you will be charged a penalty for underpaying your taxes.


Think of guaranteed payments as payroll salary without withholding taxes.
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