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fd_com
Level 2

paying yourself & family with partnership (LLC)

I have a partnership business and have question.

1) one member own 50% and work there full time ,how do we pay that person? my understand with partnership, it don't allow paying yourself.

2) if one spouse of a member also work there, how can i pay that person? like regular employee? with w-2 or 1099?

3 Comments
john-pero
Community Champion

paying yourself & family with partnership (LLC)

1. Member Equity Withdrawal, commonly called Draw. A member of an LLC can take out money according to partnership agreement and it has no tax consequence. Taxes are all based on year end passthrough on the K-1. I'm fact an LLC member cannot be on payroll unless the partnership elects to be taxed as an S Corporation.

 

2. Yes a spouse that has no stated ownership can be on payroll OR an independent contractor if they qualify - usually means they have their own separate business and perform work for others or are gainfully employed elsewhere and this is their side gig. But there are tests to determine when a contractor is an employee and you need to adhere to those.

fd_com
Level 2

paying yourself & family with partnership (LLC)

@john-pero , on #1, i thought withdraw are suppose to be distribute base on percentage. In this case, he work there full time so we want to pay him somehow without relate to withdraw. I heard something call Guaranteed payment which is what is for. is that correct?

john-pero
Community Champion

paying yourself & family with partnership (LLC)

#1 Withdrawals of equity ahead of K-1 paper distribution of profit has no set percentage but is subject to agreement verbal or otherwise between the parties.

 

Guaranteed payments to a working LLC member is what you are desiring to do here. There ought to be a paper trail in the partnership agreement specifying how much and how often but those payments to the working partner, as guaranteed payments, are valid deductions from the business as operating expenses and are included in the working partner's K-1 and not on a 1099. No deductions are made for income taxes so the recipient should make quarterly estimates on their own or the business can cut checks that would be from member draw. (the guaranteed payments are not draw, thus not an equity reduction)

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