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It means that the LLC isn;t responsible for withholding taxes on such payments. These would be taxed to the partners on their individual tax return.
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Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases.
I would suggest you to file a zero payroll tax return and claim the refund of the taxes that you paid.
Report the payments as guaranteed payments, claim them as expenses on partnership tax return and pick it up as income on your personal tax return.
Here is another link for your reference-
Guaranteed payment is deductible as a business expense.
Guaranteed payments are payments to individual partners for services rendered or for use of capital, and are not based on the partner's share of partnership income. Guaranteed payments to partners are deducted from partnership income before determining partnership profit or loss. Guaranteed payments are generally subject to self-employment tax on the recipient's individual return.
I think there is some misunderstanding in interpreting publication 541....let me know what section and I will look it up.
Yes, what you say seems reasonable.
I will be out in meeting for sometime so will reply later if you have any questions.