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#321

[quote]countingbeans wrote:
happy holidays fuckers[/quote]

Pay da government their piece of flesh.


#322

Quick question for anyone who’s not too hung over to think about it:

I’m a member of an LLC. The LLC received a 1099C which was reported on line 1 of the K-1 as Ordinary Business Income. The accountant who prepared the LLC’s return said that none of the members will owe self-employment tax on this income. My personal accountant says that I will owe self-employment income on my share.

I’ve tried Googling it to no avail. Does anyone have an opinion about this? It’s a 5 figure swing in the amount of tax I’d owe so I’d really like to know one way or the other.

TIA.


#323

[quote]Dr. Pangloss wrote:
Quick question for anyone who’s not too hung over to think about it:

I’m a member of an LLC. The LLC received a 1099C which was reported on line 1 of the K-1 as Ordinary Business Income. The accountant who prepared the LLC’s return said that none of the members will owe self-employment tax on this income. My personal accountant says that I will owe self-employment income on my share.

I’ve tried Googling it to no avail. Does anyone have an opinion about this? It’s a 5 figure swing in the amount of tax I’d owe so I’d really like to know one way or the other.

TIA.[/quote]

Not a CPA or in tax, but I did find this:

"Self-Employment Taxes
LLC members are not employees so no contributions to the Social Security and Medicare systems are withheld from their paychecks. Instead, most LLC owners are required to pay these taxes – called “self-employment taxes” when paid by a business owner – directly to the IRS.

The current rule is that any owner who works in or helps manage the business must pay this tax on his or her distributive share (rightful share of profits). However, owners who are not active in the LLC – that is, those who have merely invested money but don’t provide services or make management decisions for the LLC – may be exempt from paying self-employment taxes on their share of profits. The regulations in this area are a bit complicated, but if you actively manage or work in your LLC, you can expect to pay self-employment tax on all LLC profits allocated to you.

Each owner who is subject to the self-employment tax reports the amount due on Schedule SE, which must be submitted annually with his or her tax return. LLC owners (and sole proprietors and partners) pay twice as much self-employment tax as regular employees, because regular employees’ contributions to the self-employment tax are matched by their employers. (However, LLC owners also get to deduct half of the total amount from their taxable income, which saves a few tax dollars.) The self-employment tax rate for business owners is 15.3% of the first $117,000 of income for 2014 and 2.9% of everything above that."

http://www.nolo.com/legal-encyclopedia/how-llcs-are-taxed-29675.html


#324

[quote]Dr. Pangloss wrote:
Quick question for anyone who’s not too hung over to think about it:

I’m a member of an LLC. The LLC received a 1099C which was reported on line 1 of the K-1 as Ordinary Business Income. The accountant who prepared the LLC’s return said that none of the members will owe self-employment tax on this income. My personal accountant says that I will owe self-employment income on my share.

I’ve tried Googling it to no avail. Does anyone have an opinion about this? It’s a 5 figure swing in the amount of tax I’d owe so I’d really like to know one way or the other.

TIA.[/quote]

Did your personal accountant specify any reasons why the income would be subject to self-employment tax? Are you a limited or general partner in the LLC?


#325

And this:

"Topic 554 - Self-Employment Tax

You are self-employed for this purpose if you are a sole proprietor (including an independent contractor), a partner in a partnership (including a member of a multi-member limited liability company (LLC)), or are otherwise in business for yourself. (A sole proprietor also includes the member of a single member LLC that is disregarded for federal income tax purposes and members of a qualified joint venture.) You usually must pay self-employment tax if you had net earnings from self-employment of $400 or more. Generally, the amount subject to self-employment tax is 92.35% of your net earnings from self-employment. Net earnings are calculated by subtracting ordinary and necessary trade or business expenses from the gross income you derived from your trade or business. You can be liable for paying self-employment tax even if you are currently receiving social security benefits.

If you had a small profit or net loss from your business but want to receive credit toward your social security coverage, you may be eligible to use one of the two optional methods to compute your net earnings from self-employment. Refer to the Form 1040, Schedule SE Instructions (PDF) to see if you qualify to use an optional method. An optional method may increase your earned income credit or the child and dependent care credit.

The self-employment tax rate is a percentage set by law of your net earnings from self-employment. This rate consists of 12.4% for social security and 2.9% for Medicare taxes. The maximum amount of net earnings subject to the social security tax is set by law and changes annually. All of your net earnings are subject to the Medicare tax.

Additional Medicare Tax applies to self-employment income above a threshold amount received in taxable years beginning after December 31, 2012. The threshold amounts are $250,000 for a married individual filing a joint return, $125,000 for a married individual filing a separate return, and $200,000 for all others. For additional information on the Additional Medicare Tax, see our questions and answers.

Self-employment tax is computed on Form 1040, Schedule SE (PDF), Self-Employment Tax. When figuring your adjusted gross income on Form 1040 (PDF), you can deduct one-half of the self-employment tax. This deduction is calculated on Schedule SE. The Social Security Administration uses the information from Schedule SE to compute your benefits under the social security program."

If you are an employee of a church or qualified church-controlled organization that elected exemption from social security and Medicare taxes, and you are not personally exempt from self-employment tax, you must pay self-employment tax if you are paid more than $108.28 in a year from the church or qualified church-controlled organization. If you are required to pay self-employment tax, you must file Form 1040 and attach Schedule SE. For more information on church related income and self-employment taxes, refer to Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers.

http://www.irs.gov/taxtopics/tc554.html


#326

[quote]Kayrob wrote:

[quote]Dr. Pangloss wrote:
Quick question for anyone who’s not too hung over to think about it:

I’m a member of an LLC. The LLC received a 1099C which was reported on line 1 of the K-1 as Ordinary Business Income. The accountant who prepared the LLC’s return said that none of the members will owe self-employment tax on this income. My personal accountant says that I will owe self-employment income on my share.

I’ve tried Googling it to no avail. Does anyone have an opinion about this? It’s a 5 figure swing in the amount of tax I’d owe so I’d really like to know one way or the other.

TIA.[/quote]

Did your personal accountant specify any reasons why the income would be subject to self-employment tax? Are you a limited or general partner in the LLC?[/quote]

He believes I’m subject to self-employment tax because the 1099c was recorded as ordinary income on the K1 I received.

I am a member of a member-managed LLC.


#327

USMCCDS423:

Thank you for all that info. While it’s silent on the specific event of a 1099C it doesn’t appear as though any distinction would be made. Ordinary income is ordinary income is ordinary income.

Must a 1099C be recorded as ordinary income on the K1? Is there a class of income that I would not have to pay SE tax on?

Damn, this is going to be expensive.


#328

[quote]Dr. Pangloss wrote:
USMCCDS423:

Thank you for all that info. While it’s silent on the specific event of a 1099C it doesn’t appear as though any distinction would be made. Ordinary income is ordinary income is ordinary income.

Must a 1099C be recorded as ordinary income on the K1? Is there a class of income that I would not have to pay SE tax on?

Damn, this is going to be expensive.

[/quote]

Unfortunately I’m not in a position to answer your question. I just don’t know enough about the various 1099 forms or LLC taxation.

Sorry I can’t help more.


#329

[quote]usmccds423 wrote:

[quote]Dr. Pangloss wrote:
USMCCDS423:

Thank you for all that info. While it’s silent on the specific event of a 1099C it doesn’t appear as though any distinction would be made. Ordinary income is ordinary income is ordinary income.

Must a 1099C be recorded as ordinary income on the K1? Is there a class of income that I would not have to pay SE tax on?

Damn, this is going to be expensive.

[/quote]

Unfortunately I’m not in a position to answer your question. I just don’t know enough about the various 1099 forms or LLC taxation.

Sorry I can’t help more. [/quote]

I appreciate what you were able to provide.

Cheers.


#330

They call it self-employment tax, but what it really is a combination of amounts that would be withheld by an employer and amounts the employer must match. This is social security and medicare taxes. So all of us peons who work for the man, your company matches your social security and medicare taxes.

Since it appears you are actively involved in the business (i.e. an employee for all intents and purposes), you are subject to the self employment tax on all ordinary income.

Also, and I’m not sure b/c my expertise isn’t in tax, I would think you owe on your share of the profit. According the the Form 1065, which is the self employment worksheet, you would owe money on Schedule K-1 Box 14 Code A


#331

ZJS: That’s pretty much in line with my thinking as well. I’m not really sure why the LLC accountant believes otherwise.

Just to throw it all out there, the amount on line 1 is $250,000 which is solely from the 1099C. The amount on line 10 Net Section 1231 loss is ($500,000) solely from the disposal of the property (basis less FMV).

I owe no income tax on line 1 because of the offsetting loss on line 10. The LLC accountant goes one step farther and believes I owe no SE tax as well for the same reason.


#332

[quote]Dr. Pangloss wrote:
ZJS: That’s pretty much in line with my thinking as well. I’m not really sure why the LLC accountant believes otherwise.

Just to throw it all out there, the amount on line 1 is $250,000 which is solely from the 1099C. The amount on line 10 Net Section 1231 loss is ($500,000) solely from the disposal of the property (basis less FMV).

I owe no income tax on line 1 because of the offsetting loss on line 10. The LLC accountant goes one step farther and believes I owe no SE tax as well for the same reason.[/quote]

Yeah self-employment tax does not equal income tax.

You can deduct half of your self employment tax from your income tax as a business expense.

That all being said, you only owe self employment tax on Box 14 Code A.

On a side note, how did you get $250k in debt cancellation if you don’t mind sharing?


#333

[quote]ZJStrope wrote:
On a side note, how did you get $250k in debt cancellation if you don’t mind sharing?[/quote]

Box 14, Code A is the same number as Box 1: $250,000. The LLC’s accountant’s thinking doesn’t seem to be consistent. If he didn’t believe I’d owe SE tax, then why did he enter a number in Box 14?

Regarding your last question…honestly, I have no idea. I actually handled the matter for the LLC. We had the same banker for 10 years and I went to him and said the LLC would be dissolving and the partners were no longer willing to fund the difference between the monthly payment and the rent we were receiving but that we would cooperate in any way we could in turning the property over quickly.

My banker came back to me and said they would take a Deed in Lieu in exchange for signing away any future claims against the members of the LLC. It took me about 3 seconds to agree to it.

I have no idea why the bank suggested that when all the partners had joint and several liability, but I did an extra lap around the Rosary that Sunday in Church, lol.


#334

Does your LLC accountant work for a decent size firm? If he does he probably doesn’t do individual returns at all, which to me means he doesn’t know enough about them to say one way or the other.

For example, my wife is a tax accountant with a Masters of Taxation. She knows little about Partnership, LLC, and C Corp returns because she specialized in individual, estate, and trust returns. Her firm has a separate department for corporate returns.

The flip side is even worse to me because the LLC accountant has zero to do with individual returns were as the individual tax account at minimum sees the K-1s.


#335

[quote]usmccds423 wrote:
Does your LLC accountant work for a decent size firm? If he does he probably doesn’t do individual returns at all, which to me means he doesn’t know enough about them to say one way or the other.
[/quote]

The LLC accountant handles individual returns as well as small businesses. He was my business partner’s personal accountant when we started the firm. I’m not sure why this issue is throwing him off, but he seems to think that the very nature of a 1099C exempts it from SE tax for some reason.


#336

[quote]Dr. Pangloss wrote:

[quote]usmccds423 wrote:
Does your LLC accountant work for a decent size firm? If he does he probably doesn’t do individual returns at all, which to me means he doesn’t know enough about them to say one way or the other.
[/quote]

The LLC accountant handles individual returns as well as small businesses. He was my business partner’s personal accountant when we started the firm. I’m not sure why this issue is throwing him off, but he seems to think that the very nature of a 1099C exempts it from SE tax for some reason.
[/quote]

Hmmm ya seems weird. Well I hope you get it all sorted out.


#337

Ok, well further research found this:

For Box 14, reduce that amount by any Section 179 expenses (which would include disposal of asset losses) before entering the amount in 1040 SE.

Partnership Income or Loss
If you were a general or limited partner
in a partnership, include on line 1a or
line 2, whichever applies, the amount of
net earnings from self-employment from
Schedule K-1 (Form 1065), box 14,
code A, and Schedule K-1 (Form
1065-B), box 9, code J1. General part-
ners should reduce this amount by cer-
tain expenses before entering it on
Schedule SE (THIS WOULD BE SECTION 179 Expenses). See your Schedule K-1 in-
structions. If you reduce the amount you
enter on Schedule SE, you must attach
an explanation. Limited partners include
only guaranteed payments for services
actually rendered to or on behalf of the
partnership


#338

What was the property disposed of? I’d wonder if it qualifies as section 179


#339

It was a commercial condo purchased for my business.

Hmmmmmmmm, this looks interesting.


#340

And thank you for the research.