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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16580
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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We have a LLC with 3 equal partners that are paid equal

Customer Question

We have a LLC with 3 equal partners that are paid equal profits each month, one partner runs the store and is paid a salary through ADP and pays taxes and I was told by our accountant to pay his distribution(profit) each month as a bonus, thus he gets a large portion of taxes removed. The other two partners pay themselves under independent contractors and pay themselves not only the agreed amount but they also add in what they may have to pay in taxes. In short 3 equal partners paying 3 equal distribution amounts a and one takes home considerable less because it's taxed. So they each are paid $10,000.00 one takes home $7,036.00 (manager) and the other two get about $12,000 each.Why would the one partner take less of a distribution/profit just because he takes a salary? Shouldn't he be paid in a different manner like a draw etc?
Submitted: 1 year ago.
Category: Tax
Expert:  Megan C replied 1 year ago.

Thank you for your question. At the end of the day, though they are actually taxed the same - the people on the 1099 are paying self employment taxes, and instead of having it taken out of the distribution, they are paying it. The guy on the W-2, he'll get a refund of taxes overpaid. So, it's all the same -- it's just the manner in which taxes are withheld. One gets a potential refund from the IRS at the end of the year, the other two have a higher tax to pay with their return.

Please let me know if you need anything additional -- if not, please rate positive.