Guest chris4013 Posted April 18, 2005 Report Share Posted April 18, 2005 A partner of an LLC receives a W-2. His tax attorney just told him that he can not defer into the plan until the LLC is profitable. I have never heard this before. Anybody know if this is true? Link to comment Share on other sites More sharing options...
austin3515 Posted April 19, 2005 Report Share Posted April 19, 2005 Is he taxed as Corproation or a Partnernship? There is some controversy on these boards regarding whether or not an LLC taxed as a partnership can give the owner W-2 wages. My opinion is that if your a partner or self employed, you don't get a W-2, your income is the income of the business. So if the partnership has losses, you have no income from which to defer. I think the majority agrees with this, but we shall see! But if your being taxed as a corporation, none of that matters. W-2 wages are wages from which you can contribute 401(k). Now if your taxed as a partnerhsip, but receiving a W-2, you're in unchartered waters - at least the IRS has not chartered them to the best of my knowledge... Austin Powers, CPA, QPA, ERPA Link to comment Share on other sites More sharing options...
Guest chris4013 Posted April 19, 2005 Report Share Posted April 19, 2005 If he recevies a W-2 though, than that indicates he is taxed as a corp doesn't it? Are you saying in your reply that if he does get a W-2, and assuming he is taxed as a corp, that he could defer with a loss in the partnership? Link to comment Share on other sites More sharing options...
GBurns Posted April 19, 2005 Report Share Posted April 19, 2005 Getting a W-2 does not mean that it was taxed as a Corporation because it could have been done in error and the tax attorney might have seen some indication of that on which to base the comment. George D. Burns Cost Reduction Strategies Burns and Associates, Inc www.costreductionstrategies.com(under construction) www.employeebenefitsstrategies.com(under construction) Link to comment Share on other sites More sharing options...
austin3515 Posted April 20, 2005 Report Share Posted April 20, 2005 Yes, if taxed as a corp., then treat it like a corp for all purposes. So if the owner gets a W-2 from the corp., he can defer from those wages. Even if the CORP lost money (i.e., because the corp is a distinct entity, where as a partner in a partnership is not). Austin Powers, CPA, QPA, ERPA Link to comment Share on other sites More sharing options...
Guest chris4013 Posted June 22, 2005 Report Share Posted June 22, 2005 New Wrinkle: Taxed as a partnership. He received a W-2 through payroll instead of a K-1 like her was suppose to. How do you correct? I suppose you would treat the deferrals as ineligible and refund per the correction method for an ineligible employee. Link to comment Share on other sites More sharing options...
Bird Posted June 23, 2005 Report Share Posted June 23, 2005 First, determine if the deferrals really were ineligible. The real issue is determining compensation. It's not proper to pay a partner through the payroll system and give him a W-2 but I'm sure the accountant will tell you that it's common practice and the IRS doesn't care. So, I think you need to net out the W-2 and the partnership loss (the implication is that there is a loss). If there's a net negative compensation (or small positive comp that is less than the deferrals), then in fact the deferrals exceed the 415 limit and you process a refund under that basis. Ed Snyder Link to comment Share on other sites More sharing options...
GBurns Posted June 23, 2005 Report Share Posted June 23, 2005 If the LLC filed to be taxed as a partnership, Wouldn't this person be an ilegible participant? If so, then deferral is the main issue. Correcting the compensation has its own problems since all past year deposits and reporting have already been done, and quite likley tax returns filed. You should need to file 941Cs, W-2Cs, 1040X etc. George D. Burns Cost Reduction Strategies Burns and Associates, Inc www.costreductionstrategies.com(under construction) www.employeebenefitsstrategies.com(under construction) Link to comment Share on other sites More sharing options...
Bird Posted June 23, 2005 Report Share Posted June 23, 2005 I don't see any reason for a partner to be ineligible, unless the plan has (what I would consider to be) odd language. Ed Snyder Link to comment Share on other sites More sharing options...
Blinky the 3-eyed Fish Posted June 23, 2005 Report Share Posted June 23, 2005 He's not ineligible, he's ilegible (sic). He's one of the best poker players around because you can't read him. "What's in the big salad?" "Big lettuce, big carrots, tomatoes like volleyballs." Link to comment Share on other sites More sharing options...
GBurns Posted June 24, 2005 Report Share Posted June 24, 2005 How do he defer if he has no wages or W-2 compensation? George D. Burns Cost Reduction Strategies Burns and Associates, Inc www.costreductionstrategies.com(under construction) www.employeebenefitsstrategies.com(under construction) Link to comment Share on other sites More sharing options...
Bird Posted June 24, 2005 Report Share Posted June 24, 2005 He do it the same way any other partner do it - by writing a check. Ed Snyder Link to comment Share on other sites More sharing options...
Guest chris4013 Posted June 24, 2005 Report Share Posted June 24, 2005 Note: The CPA is amending, re-doing everything so it turns out that he does not have a W-2. he has a K-1 that shows he has a loss for comp. So would you treat this as a 415 violation because he has no comp, or a deferral from an inelligible participant? The CPA feels that it would be a SPC correction becuase he is ineligible, but I am thinking it's a 415. Link to comment Share on other sites More sharing options...
Bird Posted June 25, 2005 Report Share Posted June 25, 2005 Does the CPA give any reasoning as to why the partner would be ineligible? What is it with this unsubstantiated "ineligible" theory that it keeps coming up? Ed Snyder Link to comment Share on other sites More sharing options...
Guest rubindj Posted June 25, 2005 Report Share Posted June 25, 2005 A partner can only deferr compensation if he is paid money from the partnership. If the K-1 shows a loss (after the corrections), then his salary is 0 as far as teh IRS is concerned, therefor he wouldn't be able to contribute. Link to comment Share on other sites More sharing options...
GBurns Posted June 26, 2005 Report Share Posted June 26, 2005 Bird It seems that you are saying that all that a partner in an LLC has to do to make a participant deferral to the LLC's 401(k) is just to draw a check and have it deposited to his 401(k) participant account. Is that what you are saying? George D. Burns Cost Reduction Strategies Burns and Associates, Inc www.costreductionstrategies.com(under construction) www.employeebenefitsstrategies.com(under construction) Link to comment Share on other sites More sharing options...
Bird Posted June 27, 2005 Report Share Posted June 27, 2005 If it's taxed as a partnership, yes. Ed Snyder Link to comment Share on other sites More sharing options...
mbozek Posted June 27, 2005 Report Share Posted June 27, 2005 How does a partner make a contribution to the plan if he has no net earnings from SE? Under IRC 415© contributions for a participant cannot exceed the lesser of 42k or 100% of compensation which in this case would be 0. mjb Link to comment Share on other sites More sharing options...
Bird Posted June 27, 2005 Report Share Posted June 27, 2005 Mbozek, I don't know if you're responding to my last past and thinking that I said THIS partner can defer - he can't, as you note, due to 415 limitations. In other words, as I said before (in my very first post), he is an eligible participant but he is limited to $0. My postings since then have simply been asking why anyone thinks this guy is ineligible. (Except for the last one, which is addressed below.) GBurns - consider my last post withdrawn and replaced with this: "I will respond to your latest question when you reply as to why you think this partner is ineligible." Ed Snyder Link to comment Share on other sites More sharing options...
GBurns Posted June 27, 2005 Report Share Posted June 27, 2005 As per the OP, the item is a deferral. How can you have a deferral if there is no W-2 income from which to make the deferral? If the person, partner or otherwise has no income from which to make a deferral, How can a deferral be made? If a deferral cannot be made, How can the person be a participant making deferrals? If the person has no W-2 income and is not an employee, How can they participate in the Plan? I might seem that I went in circles, covering the same issue, but it seems that you have some way of looking at this that I and others are not seeing. See mbozek's last post. George D. Burns Cost Reduction Strategies Burns and Associates, Inc www.costreductionstrategies.com(under construction) www.employeebenefitsstrategies.com(under construction) Link to comment Share on other sites More sharing options...
Blinky the 3-eyed Fish Posted June 27, 2005 Report Share Posted June 27, 2005 Whether you want to call it a 415 violation or no income, so ineligible to defer, does it really matter? So long as we can read his handwriting and it's not ilegible (sic). That's the main concern. "What's in the big salad?" "Big lettuce, big carrots, tomatoes like volleyballs." Link to comment Share on other sites More sharing options...
Bird Posted June 28, 2005 Report Share Posted June 28, 2005 OK, I'll try again. First, a partner is not precluded from contributing to a plan just because he does not have "W-2" income. If he has compensation, i.e. partnership profits, he can contribute. I hope there's no disagreement on that. If a partner has satisfied the eligibility requirements, he is an eligible participant, whether he has compensation or not. However, his maximum contribution is $0. There is a big difference between allowing an ineligible participant to contribute and allowing an eligible participant to contribute too much. Ed Snyder Link to comment Share on other sites More sharing options...
GBurns Posted June 29, 2005 Report Share Posted June 29, 2005 The issue is deferral by a partner in an LLC who has no W-2 income. See the OP and Chris's subsequent post etc. The issue is not about contribution it is about deferral. George D. Burns Cost Reduction Strategies Burns and Associates, Inc www.costreductionstrategies.com(under construction) www.employeebenefitsstrategies.com(under construction) Link to comment Share on other sites More sharing options...
Bird Posted June 29, 2005 Report Share Posted June 29, 2005 No clue as to what point you are making. I think I have responded to Chris' posts directly. A partner can make deferral contributions as long as he has earned income, even if he does not get a W-2 (which he shouldn't get anyway). If you think otherwise, please explain why. THIS partner has no earned income and therefore can't make a deferral contribution because his limit is $0. Excuse me while I poke myself in the eye with a sharp stick and save the trouble of future discussion on this topic. Ed Snyder Link to comment Share on other sites More sharing options...
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