since we're on the subject, has anyone used their LLC to set up additional ERISA or deferred compensation plans? i'm most interested in setting up a ROTH 401k type plan through the LLC. With taxation rates likely to rise, I'm eager to use this vehicle as much as possible. Costs? Minimum income in the LLC to make it worthwhile?
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Taxes with an LLC
- Thread starter TraDaToR
- Start date
If I have a group of 3 people who are pooling resources and trades, what is the difference between an LLP and an LLC. I am leaning toward the LLP structure so I don't have filing issues. I already have an operating agreement worked out.
At the end of the year when the brokerage sends the 1099 to the LLP. If there are no distributions to partners does the LLP still have to file a 1056 with the IRS and K1s to the partners? Or do you just wait until you distribute gains to pay the taxes on them?
At the end of the year when the brokerage sends the 1099 to the LLP. If there are no distributions to partners does the LLP still have to file a 1056 with the IRS and K1s to the partners? Or do you just wait until you distribute gains to pay the taxes on them?
Quote from kocmodpom:
If I have a group of 3 people who are pooling resources and trades, what is the difference between an LLP and an LLC. I am leaning toward the LLP structure so I don't have filing issues. I already have an operating agreement worked out.
At the end of the year when the brokerage sends the 1099 to the LLP. If there are no distributions to partners does the LLP still have to file a 1056 with the IRS and K1s to the partners? Or do you just wait until you distribute gains to pay the taxes on them?
In the United States, each individual state has its own law governing their formation. Limited liability partnerships emerged in the early 1990s: while only two states allowed LLPs in 1992, over forty had adopted LLP statutes by the time LLPs were added to the Uniform Partnership Act in 1996.[9]
The limited liability partnership was formed in the aftermath of the collapse of real estate and energy prices in Texas in the 1980s. This collapse led to a large wave of bank and savings and loan failures. Because the amounts recoverable from the banks was small, efforts were made to recover assets from the lawyers and accountants that had advised the banks in the early-1980s. The reason was that partners in law and accounting firms were subject to the possibility of huge claims which would bankrupt them personally, and the first LLP laws were passed to shield innocent members of these partnerships from liability [10]
Although found in many business fields, the LLP is an especially popular form of organization among professionals, particularly lawyers, accountants and architects. In some U.S. states, namely California, New York, Oregon and Nevada, LLPs can only be formed for such professional uses. [11] Formation of an LLP typically requires filing certificates with the county and state offices. Although specific rules vary from state to state, all states have passed variations of the Revised Uniform Partnership Act.
The liability of the partners varies from state to state. Section 306(c) of the Revised Uniform Partnership Act (1997)(RUPA) (a standard statute adopted by a majority of the states) grants LLPs a form of limited liability similar to that of a corporation:
An obligation of a partnership incurred while the partnership is a limited liability partnership, whether arising in contract, tort, or otherwise, is solely the obligation of the partnership. A partner is not personally liable, directly or indirectly, by way of contribution or otherwise, for such an obligation solely by reason of being or so acting as a partner.
However, a sizable minority of states only extend such protection against negligence claims, meaning that partners in an LLP can be personally liable for contract and intentional tort claims brought against the LLP. While Tennessee and West Virginia have otherwise adopted RUPA, their respective adoptions of Section 306 depart from the uniform language, and only a partial liability shield is provided.
As in a partnership or limited liability company (LLC), the profits of an LLP are allocated among the partners for tax purposes, avoiding the problem of "double taxation" often found in corporations.
Some US states have combined the LP and LLP forms to create limited liability limited partnerships.
Quote from QQQBALL:
SSI is not double, its just that w/o an employer paying 50%, the self-employed pays the whole amount. I am not sure about the treatment of any gains as income being subject to SSI taxes. Someone here likely knows though.
I'm setting up an llc as we speak under the direction of my CPA... He said he can avoid ss tax with an LLC as long as it deals with stocks or real state. He preferred an llc as I can deduct all of my losses and not be limited as I would be with a corp.
If you were dealing with anything else, selling widgets...whatever, then he said he couldn't avoid ss tax with an llc and would have me go with a corp instead.
Nick
Another tax question for an LLC. With an LLC you can have a self-employed 401k (also known as an individual 401k) and you can pay yourself guaranteed payments and then put the cash into the 401k to defer taxes on it. You can also then have the LLC make a profit sharing contribution of up to 25% of your net income from the LLC, minus a deduction for 1/2 the self-employment tax (FICA + medicare).
In the case where you have already hit the FICA limit elsewhere (from a full-time job or whatever) do you still deduct the full 1/2 of the self-employment tax? The first opinion I got on this was no, since you've already paid the full FICA contribution you only have to deduct the medicare portion, giving you a larger contribution. That doesn't seem right though, why would the IRS let you out of it (even though you already paid it)? Has anyone else dealt with this and can weigh in?
For reference bankrate.com has a self-employed 401k calculator here:
http://www.bankrate.com/calculators/retirement/self-employed-401-k-calculator.aspx
In the case where you have already hit the FICA limit elsewhere (from a full-time job or whatever) do you still deduct the full 1/2 of the self-employment tax? The first opinion I got on this was no, since you've already paid the full FICA contribution you only have to deduct the medicare portion, giving you a larger contribution. That doesn't seem right though, why would the IRS let you out of it (even though you already paid it)? Has anyone else dealt with this and can weigh in?
For reference bankrate.com has a self-employed 401k calculator here:
http://www.bankrate.com/calculators/retirement/self-employed-401-k-calculator.aspx