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lizardaccount
February 11, 2021
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Owners' equity and draws in two-person LLC - Only one working manager

  • February 11, 2021
  • 1 reply
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My brother and I own a Partnership LLC and now I am starting to bill customers through the business for work that I do. My brother IS a manager in the company and we have agreed on a 50/50 ownership. What we want to do is allow me to invoice customers through the business and then allow me to draw the funds to use personally. My brother does not need to receive any funds. We want to keep the work I do inside the company to use in the future years. (I DO NOT WANT TO CREATE A SEPERATE ENTITY)

Best answer by john-pero

What you are describing, one LLC member performing more actual work than the other but still maintaining 50/50 equity is called Guaranteed Payments or Payments for Work Performed. Your partnership agreement can and should delineate this. It can be an actual specified amount or can be flexible and based on billable hours, or the work you do.

 

These guaranteed payments are not subject to payroll taxes but you are subject to self employment taxes, social security and Medicare, as well as this is ordinary income to you, and a deductible business expense to the company.

 

The company reports it on line 10 of the partnership return, form 1065 as well as on your K-1

1 reply

john-pero
john-peroAnswer
February 12, 2021

What you are describing, one LLC member performing more actual work than the other but still maintaining 50/50 equity is called Guaranteed Payments or Payments for Work Performed. Your partnership agreement can and should delineate this. It can be an actual specified amount or can be flexible and based on billable hours, or the work you do.

 

These guaranteed payments are not subject to payroll taxes but you are subject to self employment taxes, social security and Medicare, as well as this is ordinary income to you, and a deductible business expense to the company.

 

The company reports it on line 10 of the partnership return, form 1065 as well as on your K-1

L
lizardaccountAuthor
February 12, 2021

Thanks this helps a lot! I did not realize that I could do Guaranteed Payments as billable hours.

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