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Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 3453
Experience:  3+ decades of varied tax industry exp. Tax Biz owner
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I'm curious if I took a draw from my llc, but the llc has

Customer Question

I'm curious if I took a draw from my llc, but the llc has loses that exceed my draw do i pay social security and medicare on that draw? if so, with what form?
Submitted: 1 year ago.
Category: Tax
Expert:  Tax.appeal.168 replied 1 year ago.

You pay social security and medicare (self employment tax) on the gross earnings of the LLC. Once you have earned the money, you've earned it, taking a draw does not change the amount of your gross earnings. Of course, as a self-employed person, as a deduction, 1/2 of the self employment tax is credited back to you. SEE BELOW:

A limited liability company’s members -- as the owners are called -- cannot be paid a salary from the company when the LLC is taxed as a sole proprietorship or partnership under default rules of the Internal Revenue Service. Instead, the IRS treats the company’s entire profit as income for its members, even if they reserve some of the profit for the company’s working capital.


Let me know if I can be of further assistance to you regarding this matter.

Customer: replied 1 year ago.
for example if i took a draw of 60,000 to live...but the llc lost 120,000. I would not pay the SE tax? basically what I'm asking is on the SE short form what do i put in line 2? the $60k draw or the $120k loss.(which would mean no tax)
Expert:  Tax.appeal.168 replied 1 year ago.

In brief, the net profit goes on line 2. The net profit or loss is the gross income minus the allowed deductions. SEE BELOW:

Under IRC Section 1402, self-employment income is generally defined as the gross income derived by an individual from any trade or business carried on by the individual, less deductions allocated to the business.

(a) In general

There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including—

(1)a reasonable allowance for salaries or other compensation for personal services actually rendered;

(2)traveling expenses (including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business; and

(3)rentals or other payments required to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity.