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apc015
July 2, 2022
Question

LLC Partnership - Payroll Tax, Guaranteed Payments, 1099 Income Help

  • July 2, 2022
  • 1 reply
  • 0 views

I really hope that someone can help me out here. I've been looking around for days and just can't seem to find the answer to my question. 

 

I'm a 51% owner in a 2 member LLC taxed as a partnership.  Up until this year we have had income from projects worked on jointly, and we've taken owner draws in alignment with our owner share %.  At tax time the income and tax burden has been split along those same lines and reflected on our K1 / 1065.

 

Now I've taken a long-term contract where I have a corp2corp relationship between my company and another company, but my partner has other W2 employment and will only work and continue to receive profits from our joint engagements.  I'd like to:

1. Take 100% of the monthly income from the corp2corp hourly contract without impacting my partner.

2. Be able to track and pay payroll taxes in Quickbooks Online (Even though I understand I can't be a salary employee as an owner of a LLC)

 

So if we make 10K a year from joint profits, and I work hourly and bring 100K into the business, how can I effectively pay myself $105,100 and my partner $4900.

 

I've looked at guaranteed payments, but from what I've read the LLC operating agreement needs to specify the amount and dates, what if my hourly income is lower because I take 10 days of vacation vs 0? Or what if I pick up another contract for more hours? Do I continuously amend it? I've also looked at possibly making myself a contractor of my own company, but I don't understand the tax implications or if this is allowed? 

 

Thanks in advance to anyone that might be able to help! 

1 reply

Rainflurry
Rainflurry
July 2, 2022

@apc015 

 

This forum is not comprised of a lot of CPAs and your question definitely needs to be addressed by a GOOD CPA or an attorney.  Distributing partnership income that is disproportionate to the partnership agreement requires a special allocation and is an area of tax law that has been scrutinized heavily by the IRS due to the ability to use special allocations among partners as a way to shift income, gain or loss to partners that would receive the most favorable tax treatment, which is a big no-no from the IRS's perspective.  Your situation certainly sounds like a legitimate use of a special allocation but you need a CPA or attorney to confirm you are doing it properly.  Or, amend your partnership agreement to reflect your disproportionate allocation for a certain time period.

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