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Commissions paid to owner of LLC filing as S Corp


legort69

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LLC elects to file taxes as a corporation. 

Owner receives  broker commission paid to her c/o LLC.

She reports commissions on 1040 Schedule C and does not take W2.  

Would these commissions be eligible earnings for 401k purposes?

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1 hour ago, legort69 said:

LLC elects to file taxes as a corporation. 

Owner receives  broker commission paid to her c/o LLC.

She reports commissions on 1040 Schedule C and does not take W2.  

Would these commissions be eligible earnings for 401k purposes?

Is this one business or two?  If it's one, she's not treating it as one.  If it is one, then why does she have an LLC taxed as a corporation but reports on a Schedule C?  

If it is two businesses, then the Schedule C could be an adopting employer and they could be eligible earnings.

Ed Snyder

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Earned Income" shall mean the net earnings from self-employment in
the trade or business with respect to which the Plan has been adopted, for which
personal services of the individual are a material income-producing factor. Net earnings
will be determined without regard to items not included in gross income and the
deductions allocable to such items.

 

At the least, if her commissions are paid directly to the owner c/o the business, then should that not be included in the plan testing .

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She doesn't take W2 at all, or just on the commissions?

Isn't there something requiring owners to take "reasonable" W2 compensation in order to calculate some taxes?

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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The client is through an MEP  and  I have no direct relationship with them. I am working through a PEO contact only.

She was not taking a W2 for many years. The LLC also has regular employees.

Because her husband (also direct owner) started W2 for purposes of the 401k contribution only, I wanted to know if she would be an HCE for the testing in order to 1/2 his HCE rate.  Meaning should her commission that is issued to her name  from a broker c/o LLC be included in the ADP test?

 

 

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4 hours ago, BG5150 said:

Isn't there something requiring owners to take "reasonable" W2 compensation in order to calculate some taxes?

You might be thinking of an S corp, where this rule is designed to prevent the shareholder from taking all of their compensation in dividends.

Sole proprietors (and partners in partnerships) are not employees and should not receive a W-2 from their business. There might be some unusual cases where this would not be true but that is the general rule.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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4 hours ago, legort69 said:

Because her husband (also direct owner)

I figured this was an S Corp because husband is also direct owner.  To me that implies partnership taxed as a corp.

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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On 5/7/2021 at 2:13 PM, legort69 said:

If I find out that they are 2 businesses, then are they technically a controlled group or AFG?

Not "technically" - in fact it would be a controlled group.

Let's be clear - you can't have an LLC that elects to file taxes as a corporation, and a Schedule C as the same business.  There's either something funky going on, or it's not being explained to you very well, or you are not relaying it very well.

In any event, commissions paid on a Schedule C can definitely be included in plan compensation.  Of course it is the bottom line (net profits) on the Schedule C that you use, so if she is receiving commissions but paying money out to the LLC and netting the Schedule C to zero, then there is no income. I have no idea what is going on here.

Ed Snyder

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