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MMLLC member's comp and sect 199A deductions

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  • MMLLC member's comp and sect 199A deductions

    For Multi Member LLC members, what are some general ways to utilize compensation structure to maximize deductions? Basically, in the past with another group, members were getting paid for hourly work and getting a "bonus" % of profit sharing. Now, new group setting up structure/agreements from scratch. Members will each have equal weight.

  • #2
    for a partnership
    minimize guaranteed payments
    maximize income distributions
    my radiology group is hiring, pm if you can do msk and are interested

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    • #3
      a fair amount of relevant discussion in this thread
      https://www.whitecoatinvestor.com/fo...199a-deduction
      my radiology group is hiring, pm if you can do msk and are interested

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      • ShredtheGnar
        ShredtheGnar commented
        Editing a comment
        Thanks for the link! Will read into it.

    • #4
      The key is to avoid guaranteed payments, which is defined in ยง707(c) as a payment to a partner determined without regard to the income of the partnership. In other words, it's like a salary except it's not subject to payroll and income tax withholding and the partner pays all of the employment tax.

      One way to minimize guaranteed payments while achieving the same outcome for each member is to set up a tiered distribution and allocation structure. You could distribute and allocate the first X amount of income based on some metric of your choosing like hours worked, collections, etc. Then the next X amount of income based on some other metric like ownership percentage. You can get as complicated or as simple as you wish, so long as payments are made in relation to the income of the partnership.

      It's also essential that you distinguish in the agreement between the allocation of income and payment of distributions. These are not the same thing and should be addressed separately in the agreement as being two separate things.

      I highly recommend involving your CPA in this phase of things.

      ETA: I assumed in my answer that you are going to be taxed as a partnership. I'd also consult with your CPA to see if an S-corporation makes sense for your situation. I'd consider your payroll tax savings (if any), the effect on QBI, and how flexible you need to be on making allocations and distributions.

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      • ShredtheGnar
        ShredtheGnar commented
        Editing a comment
        Thank you David! Very helpful. Just got back after talking with CPA. He seems to be on the same page with his ideas.
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