Multi Member LLC and SE tax

I am an employee of a company and pay my appropriate taxes through my paycheck. I also own 50% of an LLC of which I trade securities through. Do I have to pay SE taxes through the LLC even though I already pay the maximum Social Security and Medicare?

Answer

Check with your accountant, but I believe the answer is no. When you fill out your Form SE for your LLC, there is a line where you list FICA taxes paid from other sources. When you list the FICA taxes withheld from your day job (lines 8a-8d on Schedule SE to your 1040), those will be subtracted out and you'll owe no additional FICA taxes on your LLC's income.

Remember that Medicare taxes (2.9%) don't have the same wage cap (currently $97,000) as Social Security, so even if you cap out on Social Security taxes at your job, you'll owe Medicare taxes on your income above $97,000. However, you won't have to pay Medicare twice on the first $97,000 of your income, as lines 8a-8d on Schedule SE tax form take the withholdings from your job into account.

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Multi-Member LLC getting distributions from separate holding company payroll - am I being double taxed?
by: Anonymous

Good Evening -

I currently am employed by a Management Holding Company (Titan) and am a member of a multi-member LLC with a 10% interest. Recently, I was given a "bonus" on my Titan paycheck that was supposed to be treated as a distribution from the LLC. My services for this "bonus" generated revenue and therefore profits for the LLC - which in the past was given to me as a cash distribution out of the LLC. This time around, my "bonus" was taxed at my personal income tax rate of about 45% since it was attached to my salary from the holding company.
I'm curious if I am being double taxed on the "bonus" since I'm also responsible for my proportionate profit interest in the LLC.

Response

If your "bonus" was treated by the LLC as an expense, then it would reduce the LLC's profit and therefore your proportionate shares of taxes on the LLC's profit.

However, unless you own 100% of the company, you would personally have less taxes if the bonus were treated as a non-taxable distribution vs. a salary.

Joint LLC With Initial Profits not Split
by: Anonymous

I am considering an LLC with a partner. I will continue my day job while they work full time for the LLC. If it is filed as a 50-50 but I do not take any income from it, do I pay taxes. Example, if we make $80,000 but that all goes to owner 2 for his personal income and I take $0, am I taxed on the $40,000 (which is technically my 50%).

Response

The default rule is that each member reports taxable income based on their respective percentage interest. Therefore, you would receive a K-1 from the LLC showing your share of the profits for that year, which you will be expected to report on your tax return and it will add to your taxable income for that year.

Remember that as a pass-through entity, the members realize all of the LLC's profits and losses regardless of whether the members draw any cash out of the LLC.

Therefore, you should make sure that the LLC pays out at least enough of its profits to enable the member's to cover their tax liabilities incurred by the LLC's profits.

However, the members can--through provisions in their Operating Agreement--allocate profits and losses differently from ownership interest.

For example, you could own 50% of the LLC, but for years when you did no work, allocate 100% of profits and losses to your partner.

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