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USTaxAdvising
USTaxAdvising, CPA
Category: Tax
Satisfied Customers: 1237
Experience:  US Taxation specialist.
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I have a Texas LLC partnership consisting of two partners,

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I have a Texas LLC partnership consisting of two partners, myself and my partner (individuals not entities). We are both active in the day-to-day operations of the business. We do not pay salaries to us. Do we both have to designate our earnings as self-employment earnings or can one of us take the income as distributions?

We've talked to two CPA's but are getting conflicting information or "I'm not sure" answers.

(I have income from other sources and would prefer not to take the earnings as self-employment income from this partnership, whereas my partner doesn't have other income and currently he would receive a higher refund if he classifies the earnings as self-employment earnings. Both he and I are in agreement that we can amend our LLC agreement to accommodate a more favorable tax situation for us both if it is legitimate to do so.)

USTaxAdvising :

What is the nature of the business? (meaning what do you do?)

USTaxAdvising :

Since you are both active in the activities of the partnership the income generated would be designated as "self employment earnings."

USTaxAdvising :

Note that as the LLC is a partnership you do not pay tax on any distributions you receive from the partnership (unless the distributions are in excess of your basis).

USTaxAdvising :

You pay tax on the income the partnership generates annually, not on the cash distributions you receive.

USTaxAdvising :

There is nothing you can do in the partnership agreement to change the fact that the income would be self employment income.

USTaxAdvising :

If one of you were not active in the partnership then it would be a passive activity for that partner and not subject to self employment income designation.

USTaxAdvising :

I hope this helps, please let me know if you have any further questions.

USTaxAdvising :

Best regards,

USTaxAdvising :

Let me know if something is not clear.

Customer:

What is the nature of the business? (meaning what do you do?)The business is Internet marketing consulting. We work from home offices and primarily do business online.

USTaxAdvising :

Ok that would definitely constitute self employment income.

USTaxAdvising :

Let me know if you have any further questions.

USTaxAdvising and 4 other Tax Specialists are ready to help you