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Multiple Member LLC issues W2 to member. Looking for advice.

I know one fix is...
Multiple Member LLC issues W2 to member. Looking for advice. I know one fix is to amend the W2 down to zero, correct 940/941, state forms,... Looking for other 'solutions' that are generally acceptable to IRS. New client, no I didn't recommend this, yes I told them to stop. Friday sanity check.
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Answered in 3 minutes by:
3/16/2018
Brian Michels
Brian Michels, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 207
Experience: Partner at Michels & Hanley CPAs, LLP
Verified

Hello. My name is ***** ***** I'll be the Expert assisting you today. I am a licensed CPA. I look forward to helping you with your issue today. A W-2 should not be given to a member/partner. If a member/partner of an LLC provides services in receipt for payment it should be included on the partner's K-1 as a guaranteed payment. These payments are not subject to payroll taxes. The other option is to have the partner report the wages on his/her personal tax return vs. including as self employment income from the K-1 if the amount is not significant. "Self employment" taxes are essentially earned on the income through the payroll tax withholding and employer portion of payroll taxes. Please let me know if you have questions. I"m happy to help.

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Customer reply replied 5 months ago
The amount was over $30,000 and the 'damage' is done. Just looking for best practices advice on what to do after-the-fact (and short of doing all the amended filings / corrections for W2, 940, etc.).

I have seen on several occasions W-2's issued to partners in an LLC. Although not necessarily the correct way in almost all the times the client took the position to keep it for the year (vs. amending payroll tax returns) and make sure to handle it correct going forward in the next year. If thats the way it will be handled your client who received the W-2 will just report that as wages on his/her personal tax return. Let me know if that answers your question. If you have any questions don't hesitate to ask.

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Customer reply replied 5 months ago
That's what I thought. The LLC takes the deduction, the remaining profits are split, K-1s are issued with the net earnings after W2 deductions, and the same amount of tax is paid (close enough). I know it's not technically correct but it gets to the same conclusion. Yes, the client will do it correctly going forward now that they are with me. Thanks, Brian!

I hope I’ve provided the information you were seeking. If you are happy with my service, your 5-star rating at this time is most welcome. If you need more help, please let me know so l can continue to assist you.

Brian Michels
Brian Michels, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 207
Experience: Partner at Michels & Hanley CPAs, LLP
Verified
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