Welcome Guest. Register Now!  



Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 01-31-2017, 09:48 PM
Junior Member
 
Join Date: Jan 2017
Posts: 1
Can the hours spent by one of the Partners in an LLC be treated as expense

My wife is a partner in a small business. The other partner in her LLC lives in a different city and does not contribute to the day to day operations of the business. Although the partnership is equal, it was agreed that my wife would take a certain amount as admin salary/fee. During the first few months she could not take the admin salary as the business was not generating enough profit. Both partners agreed to consider the unpaid admin fee as arrears.

For tax purposes, can my wife report the arrears as investment? During the next year assuming that the business generates enough profit - these arrears could be reported as income. Any guidance is highly appreciated.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 02-01-2017, 05:01 PM
Moderator
 
Join Date: Oct 2010
Posts: 4,685
My wife is a partner in a small business. The other partner in her LLC lives in a different city and does not contribute to the day to day operations of the business. Although the partnership is equal, it was agreed that my wife would take a certain amount as admin salary/fee.===> You mean guaranteed payments; Guaranteed payments are those made by a partnership to a partner that are determined without regard to the partnership's income. Owners of partnership (partners) and LLCs (members) do not get paid wages. Their 'pay' is in the form of capital distributions which are based on % ownership...most of the time.

During the first few months she could not take the admin salary as the business was not generating enough profit. Both partners agreed to consider the unpaid admin fee as arrears. =====> Guaranteed payments to partners are payments that are guaranteed to be made to a partner irrespective of whether the partnership makes a profit or not. Guaranteed payments to partners are made to ensure that partners are compensated for specific contributions they make to a partnership, whether in the form of goods or services. This eliminates the risk of their making personal contributions of time or property for which they are never paid if the partnership is not successful.



For tax purposes, can my wife report the arrears as investment?======>I guess so either investment or capital contribution in the PS. The IRS, courts, and practitioners generally take one of two approaches for the treatment of guaranteed payments: treating such payments as a separate item in the nature of interest or rather as a distributive share of partnership income. The characterization of those payments as interest like or as a distributive share can lead to vastly different tax consequences for the recipient. The law is notoriously conflicting, and it seems the best taxpayers can do is to make a judgment call based on their particular circumstances, taking into account the history and languageofthestatuteandthewayithasbeenapplied in different contexts by the courts, Treasury, and the IRS.

During the next year assuming that the business generates enough profit - these arrears could be reported as income==>Yes and it is as you can see subject to self employment taxUNLESS the partner?s , your spouse, portion of the PS?s loss exceeds the income.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Ads
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
LLC treated as S-Corp tracyle S-Corporation 2 09-10-2016 07:52 PM
Investors Bank Hours - 5500% after 24 hours bitcoindouble For 2016 0 03-18-2016 10:13 AM
Investors Bank Hours - 5500% after 24 hours aninvestment Income 0 03-18-2016 07:40 AM
Is time spent creating document deductible enstorms Itemized Deductions 0 03-25-2014 06:43 PM
How are partners of a partnership treated for Tax purposes? Tanya Limited Liability Company 0 01-14-2008 08:07 PM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning