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Legal Eagle Esq.
Legal Eagle Esq., Attorney
Category: Business Law
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Experience:  Business / Corporate / Real Estate
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I am in a partnership, written agreement with 35% ...

Customer Question

I am in a partnership, written agreement with 35% ownership. I cannot get any of the bussiness write offs for tax purposes. My two other partners are taking them. They will not take taxes out of saleries and this has presented me with a large tax bill. There are 4 partners total. The other partner with 14% is in the same sitituation. Looking for someone to help me with this matter, I believe this is illegal. Looking to recoup from this situation and get out of partnership.
Submitted: 7 years ago.
Category: Business Law
Expert:  Legal Eagle Esq. replied 7 years ago.

A few questions-

1) What kinds of partnership is it (General Partnership "GP", Limited Partnership "LP", Limited Liability Partnership "LLP")?;
2) If an LP who is the General Partner (is it one or more of the individuals or another entity and who are the members/partners/shareholders of that entity?)
3) Do all partners work for the partnership and receive salaries or are some partners actively involved in the partnership day to day operations and some partners merely passive and just waiting for the partnership to generate income and distribute profits?;
4) Does the partnership agreement indicate that all items of income and expense will be allocated to each partner in relation to their respective percentage interest in the partnership?
Customer: replied 7 years ago.
1. LLC Partnership
2.There is two partners, controlling 51%.
3.There are two working partners, the one owning 14% and myself with 35%. The other two meembers no not draw a salary.
4. Yes.
I am the day to day managing partner, although the managing partner on the agreement is stated differently.
Expert:  Legal Eagle Esq. replied 7 years ago.
If the distributions to the partners are self-employment income or otherwise distributable shares of partnership income to which they are entitled to then they are not required to pay taxes upon the distribution (although they will, of their own accord, be required to report the self employment income or distributions on their tax returns and may also be required to file quarterly state and federal tax payments).

Are you entitled to any portion of the profits independently of your salary? I would presume you are entitled to 14% of the net profits which in your case would appear to be self-employment income and thereby provide you with some deductions equal to your 14% partnership interest.

If an LLC is taxable as a partnership then a member's eligible share of income may treated in in of the three following ways:

1) Self-employment earning - Self-employment income incurs an additional tax of 15.3 percent;
2) as salary or wages; or
3) as distributable shares of partnership income under Subchapter K.

Whether a members distribution are considered self-employment income is dependent on the following

A partner distribution should be treated as self-employment income if any of the following apply (otherwise then distributable share of partnership income to be treated as investment income and detailed in a K-1):

The member(s)
1) have personal liability for the debts of or claims against the partnership as a result of being a partner;
2) have authority to contract on behalf of the partnership under the statutory law under which the partnership is organized; or
3) have participated in the partnership's trade or business for more than 500 hours during the taxable year.

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Legal Eagle Esq.
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Business / Corporate / Real Estate