Dear Abax,

The 3 member LLC will file an Annual partnership tax return (assuming you have not elected to file a C corporation tax return). Each partner will receive a K-1 that will report his or her share of the distributative share of their income or loss.

If your K-1 shows a net profit/ net income from operations and you were an active partner that income would be subject to S/E Tax along with your regular tax rate. In short, you would incur an additional tax liability for which your LLC could not make a payment on your behalf. This shortfall, is your responsibility alone!

However, some LLC's or partnership make a distribution to their general partners around April to pay for the expected tax liability incurred due to K-1 income.

In the case where you are an inactive partner of the LLC your income reported on the K-1 would not be subject to S/E tax.

But, effective tax planning by your CPA would help you plan your projected tax liability and can allow you to make a timely estimated tax payment to avoid paying penalties and interest on underpayment of taxes.