Guaranteed Payments to Partners in an LLC

[Guest DCquestioner]

We took over a plan for an LLC taxed as a partnership. I asked the CPA for the partnership income, and she e-mailed me back the partner's "guaranteed payments". Apparently that's all the prior TPA ever asked them for.

Am I correct in understanding that guaranteed payments are distributions to partners, but their net earned income can be smaller if the partnership has a loss?

So really, I can use this to do some estimates, but need final partnership income to determine contributions that are based on a % of pay?

[rcline46]

Yes. There are other threads on this because it can get complicated. Fundamentally, you are looking for the 'earned income' from the partnership that goes on the Schedule SE (or the net of this after 1/2 SET which comes from the schedule SE).

[K2retire]

And the accountant should know that!

[Guest mjb]

Yes. There are other threads on this because it can get complicated. Fundamentally, you are looking for the 'earned income' from the partnership that goes on the Schedule SE (or the net of this after 1/2 SET which comes from the schedule SE).

Isnt all of this information on the partners K-1?

[K2retire]

The earned income before the adjustments for employer contribution to the partner and 1/2 of the SE tax is on the K-1.

[TPA Bob]

And the accountant should know that!

But the K-1 cannot be prepared without the contribution information, assuming the taxpayer is going to accrue the contribution and deduct in prior year.

And most accountants will not understand what compensation is for retirement plan purposes. We have to explain all the time. We usually ask for a detail of total distributable income and any guaranteed payments and do the calculation ourselves - much easier.

[BeckyMiller]

In defense of the accountants, I have to tell you that a highly experienced accountant may have no certainty about net earnings from self-employment is for a member of an LLC. The IRS issued proposed regulations years ago and those regulations are still not finalized. LLC members are NOT necessarily the same as limited partners but absent final guidance many tax practitions use the limited partner concept for certain LLC members. In such case, providing only the guaranteed payments would be the consistent thing to do. NOTE - I did not say the RIGHT thing to do.

See http://www.nysscpa.org/cpajournal/2006/606...entials/p32.htm for a good discussion of the issue.