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RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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Guaranteed payments are not subject to income tax

Resolved Question:

"Guaranteed payments are not subject to income tax withholding."

But does that mean that the partner's don't have to pay income tax on guaranteed payments or merely that the LLC isn't responsible for witholding any of those taxes due?
Submitted: 9 years ago.
Category: Tax
Expert:  RD replied 9 years ago.

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.

 

Let me know if you have any question. Bonus and Feedback will be highly appreciated!!!

 

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.

 

Customer: replied 9 years ago.
Well since I've already paid the IRS $10,000 it seems like I should in fact proceed now to claim myself as an employee NOT have myself an LLC member--and put that 10,000 towards my payroll taxes

I will then be a business expense tht the LLC can claim?

Does that seem reasonable and proper?

Then let the LLC be two members---one with guaranteed payment--which looks comples and like I have a lot of reading to do over the weekend.

I'll go ahead and pay with bonus when we get to the end of this round.
Customer: replied 9 years ago.
which looks complicated and like I have a lot of reading to do.....

I meant to say
Expert:  RD replied 9 years ago.

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-

http://www.taxlinks.com/rulings/1969/revrul69-184.htm

Let me know if you have any question. Bonus and Feedback will be highly appreciated!!!

 

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.

Customer: replied 9 years ago.
OK that may be the way to go.

Publication 541 implied to me that guaranteed payment to membes is not a deductable LLC loss---did I misunderstand that?

If we can "claim them as expenses on partnership tax return" that makes things much easier.

We can file the LLC taxes on time--Richard can claim his losses and do his filing on time while Eli and I (claiming guranteed income) could both file for extensions on our personal taxes to give me time to sort through some of the finer detail?

Does that seem reasonble?

Don't worry--I will be paying you with Bonus for your help today.
Expert:  RD replied 9 years ago.

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.

Let me know if you have any question. Bonus and Feedback will be highly appreciated!!!

 

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.

RD and other Tax Specialists are ready to help you