Hello and thanks for asking your finance question.
How is your LLC taxed at the federal level? Sole Proprietor? Partnership? S-Corp? C-Corp?
Partnership - it has salaried employees who get bonuses during the year and the partners get bonuses during the year via guaranteed payments.
I'm not sure what you mean by year-end accruals.
Under normal circumstances, the profits are pushed into Retained Earnings automatically. You either assign dollars to partner's equity accounts on 12/31 or it remains in R/E.
The partners will pay tax on the profits according to their respective shares whether it is allocated or not.
Can employee bonuses be accrued at year end?
Employee bonuses are nothing but wages.
If you are an accrual basis, then you could. If you are cash basis, then not.
Yes, it would reduce current income.
So for $40,000 in profit left over, the partners would have that reported on K-1 and taxed as income?
Employes count the money as income in the year they receive the cash.
I mean the partners
If there was $40K AND you are on accrual accounting AND you allocate all of it to employee bonus, then there is no profit.
Otheewise, the unpaid out profit is shared and taxed to the partners
Profits do not equal distributions in many partnerships
And the unpaid profit goes to R.E
Sometime distributions exceed profits and sometimes the other way around.
But, it should be properly allocated to the partners' capital accounts unless you will be using the R/E for something later.
What do you mean distributions, out of capital acct?
Each partner should have a capital account (equity)
Yes. so that reported profit to them that isn't paid is in their capital acct. This is the first year there is any profit
Tell me what you are trying to do?
Reduce a $40,000 profit (after employees bonus accrual)
If it is AFTER the accrued bonuses, then I have no suggestions at this point since the year is closed.
If you asked me two weeks ago, I could have had some ideas, including retirement plans.
But the gate is closed for 2012
What kind of retirement plans so I'll know. That's what I thought. Any pmts. to partners cannot be accrued right?
For retirement plans, you would have had to establish a plan before year end.
You mean with an institution?
If you have employees, you cannot set up a retirement plan that excludes non-owner employees.
You can consider 401K or other plans
An SEP is possible as long as you don't mind contirbuting to employee's retirement.
In any case, tax planning is pro-active, not reactive.