Generally speaking, the LLC members cannot take a payroll or a salary. Thus, they do not go on payroll and have taxes deducted from their salary and the LLC's are not subject to payroll taxes for the members's salary!
The usual method of taking out profits from an LLC are through a member distribution very similar to that of an S Corporation. This is accomplished by the LLC simply writing a check in the name of the member. The member is then able to deposit the check into his personal account and disburse the funds in any manner he wants and there is no tax at the source!
However, at the end of the tax year, the LLC's file a tax return and report a K-1 for each of its member, (the profit or loss allocation is based on partnership agreement). The net income as reported on the K-1 is generally subject to self-employment for its actively participating members.
So, the LLC member when filing his or her own tax return, is responsible for reporting his distributable share of the K-1 income/loss. In the case of a profit, a provision would have be made to ensure that sufficient estimated taxes have been paid to meet the LLC members self-employment tax liability along with regular tax on the net income reported on the K-1.
In practice, the LLC member would be advised to consult a CPA to ensure through careful planning that the tax liability has been met through estimated tax payments so as to avoid underpayment tax penalties and interest.
Last edited by TaxGuru : 05-25-2007 at 06:10 PM.