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sgfee123
Level 2

LLC manager salary & self-employment taxes

Hello Quickbooks community,

 

This is more of an LLC question than a QB question, but I’m hoping the good people of the Quickbooks community will help me out anyway.

 

I set up a multi-member LLC in October, 2018. An irrevocable trust and myself are the only members. It is a manager-managed LLC. I am the manager. Profits are split according to percent ownership. I own 99%, the trust owns 1%.

 

I’ve watched many videos on the topic of LLC’s. They all seem to say the owner must take a salary. I do not take a salary. The LLC’s Operating Agreement specifically states: “The duties of the manager are strictly voluntary”.

 

My question is: Am I supposed to be taking a salary and paying self-employment taxes?

 

Some background:

 

  • The LLC trades stock options on a daily basis. All profits/losses are short-term capital gains/losses. The LLC has no other activities.
  • A highly detailed and accurate manager’s time log has been maintained since the LLC’s inception. The manager (me) averages 42 hours per week on LLC activities.
  • There have been no contributions or distributions other than the original investment.
  • I am retired. Social Security and a brokerage account unrelated to the LLC are my only sources of income.
  • Year-to-date profit for the LLC is $62,000. All short-term capital gains. This will be "passed thru" to me via an IRS K-1 form and I will pay the taxes on my personal tax return.

 

Am I required by the IRS to take a salary and pay self-employment taxes?

Thank you for your help,

Steve F.

Solved
Best answer September 09, 2021

Best Answers
Rustler
Level 15

LLC manager salary & self-employment taxes

There is so much misinformation on the net it is sad.

LLC is not a business type, LLC is just a state legal dodge that protects your personal assets in the event a law suit goes against the business.

 

What counts is how the business files its' taxes. A sole proprietor (single owner), a partnership (more than one owner) or a c- or s-corporation. Sole proprietors and partnerships means the owners/partners may NOT be on payroll. C- and s-corporations the owner/shareholder MUST be on payroll.

 

So if the business files as a partnership (form 1065 and individual form K-1's) then the owner/partner is not allowed to be on payroll and there is no salary.   

 

BUT, since a partnership (and sole proprietor) are pass through entities, then yes you have to use Form 1040-ES to file quarterly estimated taxes, which include self employment taxes too.

 

But if the K-1 you receive is from an s-corporation, then you are on payroll and whether or not you file estimated taxes is a personal income decision

View solution in original post

2 Comments 2
Rustler
Level 15

LLC manager salary & self-employment taxes

There is so much misinformation on the net it is sad.

LLC is not a business type, LLC is just a state legal dodge that protects your personal assets in the event a law suit goes against the business.

 

What counts is how the business files its' taxes. A sole proprietor (single owner), a partnership (more than one owner) or a c- or s-corporation. Sole proprietors and partnerships means the owners/partners may NOT be on payroll. C- and s-corporations the owner/shareholder MUST be on payroll.

 

So if the business files as a partnership (form 1065 and individual form K-1's) then the owner/partner is not allowed to be on payroll and there is no salary.   

 

BUT, since a partnership (and sole proprietor) are pass through entities, then yes you have to use Form 1040-ES to file quarterly estimated taxes, which include self employment taxes too.

 

But if the K-1 you receive is from an s-corporation, then you are on payroll and whether or not you file estimated taxes is a personal income decision

sgfee123
Level 2

LLC manager salary & self-employment taxes

Thank you for the prompt and thorough reply to my question.

 

You have given me confidence that I am doing it correctly.

 

Great answer!

 

Thank you for your help.

 

Steve F.

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