PLLC and Bonus after Plan Year End

[msmith]

Partners will be receiving bonuses in January 2017, attributable to 2016 settlements.

Can the Partners:

1. Assuming an election is made in advance of the settlement payment, defer for 2016 from the 2017 settlement payments?

2. Have 2016 Profit Sharing allocated based upon the settlement payment?

[Bird]

When would the "bonus" be taxable? I'm not sure what "PLLC" means but if it is an LLC taxed as a partnership, then "bonus" is "distribution" and availability for retirement plan contributions is dictated by when it is taxed.

IMO the whole concept of a bonus is kind of a red herring - retirement contributions are based on taxable income. Determine that and then you know what they can contribute. If it is a cash flow issue, then they can use any money to fund contributions, including a distribution physically received after the end of the year.

(If everyone in the world except me knows what PLLC means then maybe my comments are random/irrelevant.)

[RatherBeGolfing]

(If everyone in the world except me knows what PLLC means then maybe my comments are random/irrelevant.)

Professional Limited Liability Company.

Basically an LLC for licensed professionals.

(Edit: not irrelevant at all. As far as I know PLLC would be taxed the same way as an LLC. In some states, I have seen clients that were partnerships switch to PLLC. I believe the use of an PLLC is common when an LLC is not allowed for your type of business.)

[msmith]

Many thanks!

[austin3515]

I am assuming taxed as a partnership although never explicitly stated. If a w-2 bonus it is obviously comp in year paid.

As someone already suggested, there is no such thing as a "bonus" to partners. They get guaranteed payments. If the CPA counts the January payment as a guaranteed payment for the applicable plan year (even though it wasn't paid) then that's not your concern. It is Self Employment income (Box 14A on K-1) and so it is eligible wages. Just make sure the deferral election was (will be?) signed BEFORE 12/31.

With respect to the accrual of GP's paid after 12/31:
https://ttlc.intuit.com/questions/2892389-multi-member-partnership-guaranteed-payment-questions-with-an-accrual-accounting-do-they-have-to-add-the-last-two-weeks-of-2014-as-money-paid-to-the-k-1-but-paid-in-2015

See also the relevant part of Treas. Reg. §1.707-1©:
Guaranteed payments. Payments made by a partnership to a partner for services or for the use of capital are considered as made to a person who is not a partner, to the extent such payments are determined without regard to the income of the partnership. However, a partner must include such payments as ordinary income for his taxable year within or with which ends the partnership taxable year in which the partnership deducted such payments as paid or accrued under its method of accounting.

Note that this assumes the partnership is on the accrual basis of accounting.