What is the best way to take out cash from partnership LLC? Can I take a dividend?
Submitted by Anonymous on Tue, 2008-08-19 09:44.
I am a 50% partner in an LLC. Last year we lost $120k. We both offset our income by $60k. This year we can probably take out $200k form our business ($100k each).
I'm also employed so if I take the payment as income this year it will increase my basis and I'll pay income tax at the highest level.
Is there a way to take out this $100k as a dividend and then pay 15% on it?
Thanks
Jeff
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MMLLC/Partnership Income
Hi Jeff,
Nope, MMLLC/Partnerships do not issue dividends so that's not an option. :)
You will be taxed on the $100K of net income from the Multi-Member LLC/Partnership whether you take the distribution or not.
In addition to the income tax, you will pay Self-Employment tax on the MMLLC income. The SE tax is 15.3% but you get a credit for Social Security tax paid from W-2 Wages. So if your W-2 income is $102K or more, you'll only pay 2.9% of SE tax (the medicare portion).
Hope this helps.
L:)
mre LLC Questions
I have the same question in mind. My situation, I am employee of the company and get paid by W2. Can I offered as a bonus and add in W2 or do I have to pay myself by the company ina different way? What are the ways to get the money out with less tax implications. I thought if you just show in the return as the business income, it will be only prone to captial tax of 15%? Can I do that?
I also one more question. Is it better to have my wife as employee(who does quite a bit of admin work) and pay her reasonable salary which is in less tax scale instead of taking out the money at the end as bonus or other ways? I know having her as an employee, she can also contribute to SEP IRA as per one of the financial adviser I talked. Is that true?
Finally, I thought about one more question. How do my company contribute to SEP or Solo 401k 100%? Does it get deducted in company expense and also I get the benefit. How does it work?
I know I have put many questions. Please help me find the answer. Thanks
Single Member LLCs
Hi Vijai,
I'm confused. You say you're an employee of the company, but if you have a single member LLC, then you are taxed as a sole-proprietor unless you submit Form 2553 electing to be treated as an S-Corp.
The answers to you questions are completely different depending whether you're taxed as a sole proprietor or S-Corp
Let me know which applies & I'll reply. Otherwise my answer wont make much sense because there will be too many if-then's
L:)
Linda, Its is 2 member LLC
Linda,
Its is 2 member LLC myself and my wife. I pay myself thru paycheck(W2) from my company which is equivalent to self employement but not exactly because of 2 member LLC. In this situation, how will you recommedn to take out the cash and avoid tax implications?
Multi-Member LLC = Partnership
Hi Vijai,
An LLC that has 2 or more members is taxed as a partnership by default, unless you filed Form 2553 to be taxed as an S-Corp (or 8832 to be taxed as a C-Corp).
Partners do not receive W-2 wages. They are taxed more like a sole-proprietor. Each partners' prorated share of the LLCs taxable income flows to their personal return and they pay self-employment tax on it in addition to income tax.
For argument's sake, let's say you put $75K into the partnership. If in Year 1 you had a $60K loss, your basis is $15K at the end of year one. You have taxable income in Year 2 of $120 and you take out $100K in distributions. Your basis at the end of year 2 is $35K (75k - 60k + 120k - 100k). You will pay income tax & self-employment tax on $120K in Year 2.
Now, the self-employment tax is reduced based on your W-2 wages. Let's say you have $82K of wages from another job. The 2008 FICA cap is $102K. So $20K of the $120 in partnership income is subject to the full 15.3% self-employment tax. The remaining $100K is only subject to the medicare portion of the tax, 2.9%.
I'm a bit confused because you should not have been paying yourself W-2 wages as a partner. I think you need to get that part sorted out before you move forward with any bonuses or retirement plan contributions.
L:)
Linda, I am the managing
Linda,
I am the managing partner and at same time work as employee for my company. I have all the papers filled out to say that I am an employee. I don't take out money as a contractor. I bill invoices for my services thru my company to the client. Then I get paid from my company as an employee. It is similar to self employed except I have 2 members in my LLC. Can't it be done like that? I thought you can do that similar to S-Corp. Let me know if its not legally correct.
Thanks
VIJAI