Comments on: How Limited Liability Companies (LLCs) Are Taxed

By: Corey Rosen

Corey Rosen — Wed, 02 Sep 2009 23:46:32 +0000

One of the questions that often comes up in an LLC is whether you can share equity with employees. For many years, the most common advice on sharing equity with employees in a limited liability company (LLC) has been “switch to S corporation status instead.” The argument was that it was too complicated to share equity in an LLC. Yet many LLC leaders want to share equity with employees and have very good reasons for retaining their company’s status as an LLC. When we at the NCEO asked experts in employee ownership law if it were possible to share equity in an LLC, the usual response was “yes, but it is complicated.” No one seemed to want to go into too much detail about just what these complications were, however.

In fact, LLCs can create options-like instruments called “profits interests” and restricted stock-like instruments called “capital interests,” or they can create plans that mimic stock appreciation rights or phantom stock.

The National Center for Employee Ownership has now published a new book on this topic called Equity Compensation in Limited Liability Companies. The authors are Corey Rosen, NCEO’s executive director, along withcoauthors Alan Nadel (an accountant) and Dan Janich and Brian Hector (attorneys). Details on the book are at http://www.nceo.org/main/pub.php/id/180/.

By: OH

OH — Sun, 05 Jul 2009 03:11:45 +0000

I don’t understand this Self Employment Tax for active members of the LLC. I’m the managing member of an LLC. My membership interest is 20%, and another member owns 80%. We are both active, although I will become the primary active member once start-up activities are pretty much done.

So is this self-employment tax IN ADDITION to ordinary income tax? That seems crazy. I’m busting my butt and I’m gonna get taxed even more? Also, besides sales tax, (and we have no employees), are there any quarterly filings I need to file?

By: mark

mark — Fri, 27 Feb 2009 21:32:48 +0000

Just to be clear if my wife owns 49% of the business and is not a manager or employee, she receives passive income that is not subject to self employment tax, because she in effect is a limited partner. Is that correct?

I suppose our percentage of ownerships would dictate which portion was subject to self employment tax.

By: maria

maria — Sat, 07 Feb 2009 03:23:21 +0000

my start cost me over 150k in material for the store not including inventory. to deduct this cost, does it take along time or can it be deducted right away? very important to know

By: Mark Freeman

Mark Freeman — Thu, 19 Jun 2008 18:44:47 +0000

In an LLC if members are non-resident aliens(NRA),is the LLC obligated to set aside income tax payments for the NRA members?

By: Casi Deatherage

Casi Deatherage — Wed, 09 Apr 2008 16:12:42 +0000

Hello Raj, Mike, GG and J,

There are several resources to your questions, some even on our website.
You can locate our expert advice tab at the top of the page. You can also go to Google and search for forums designed to be of assistance to people who are searching for more complex help.

Goodluck!

Casi Deatherage
Palo Alto Software
Customer Care

By: GG Kay

GG Kay — Sun, 06 Apr 2008 20:21:13 +0000

Mike,
Good question—I would like to know the answer on this one too! Except we have a multi-member (only my husband and I are the owners) LLC.
GG

Additional wording for my questions——
My husband and I just started an LLC company in Kansas within the last few days. I was wondering if I actually completed the EIN paperwork incorrectly.
I answered the question that it is a multi-member or 2 owners (since my husband and I are the only owners in the company). But should have I answered the question as 1 (single member llc)? The reason I ask is that — we want to be a disregarded entity separate from the owners. Or that is what I was told I needed to be (entity).
If in fact I complete the EIN application incorrectly, how do I correct my EIN number and then do I get an EIN number for my husband? I am pretty knowledge in the accounting field but this is confusing so much!
Last question, can a company that is home-based pay (write a check from the business account) to pay the entire mortgage payment? Hope I worded the question ok—what I am trying it ask is can a business that is located in our home write a check that pays our personal mortgage? The business would have an expense of rent/mortgage if was located elsewhere, but since it is located in our home, can I classified this as an expense? I am not asking about depreciation, I am inquiring about month office expenses. Again hope that makes sense! Thanks a bunch for all the great post–I read them all!!!

By: J Pittman

J Pittman — Thu, 03 Apr 2008 23:56:43 +0000

i have a question regarding purchasing an individual’s “shares” of an LLC…how is this taxed? is there capital gains or is it determined by my date of purchase or the individual’s (the person that i buy his/her shares) date of purchase? just curious…

By: Mike

Mike — Sat, 29 Mar 2008 12:49:14 +0000

You have a business that is a sole proprietorship LLC and the buildings are owned by you personally. Can the business rent the buildings from you and report the rental on Schedule E

By: Raj Patel

Raj Patel — Sun, 02 Mar 2008 19:41:59 +0000

In multi-owner LLC for rental home, we plan to use one owner name and credit to get a loan. LLC will be paying mortgage each month and LLC will be owning rental home after home is closed. In this case how can LLC members get mortgage tax benefit?