Everywhere I look for information about LLC member/partners it states they should not be given a W2. They can be given a Guaranteed Payment, but not a W2. I was told by a client that his CPA told him it is common practice to give LLC member/partners a W2. I read where the IRS can reclassify the W2 payments to a Guaranteed Payment and disallow matching social security medicare payments as well as other benefits paid by the LLC/partnership for the LLC member/partner. What are your opinions?
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An LLC member can receive a W2 if the LLC is taxed as a C or S Corporation. The W2 would be for the reasonable salary that needs to be paid to them.
If the LLC is being taxed as a partnership the members would not receive W2s even for guaranteed payments. -
I follow the established procedures of passing through income and expenses from a partnership to the partners on a K-1 which includes any guaranteed payments as well as other income earned &/or distributions. Why go through the time and cost of running payroll when it's not the right way and, as you said, risks reinstatement by the IRS in an audit. Why risk an individual audit opening up the partnership to audit, and all the other partners? Or a partnership audit opening up all the partners to audit? Set up the partners with ES (using the new IRS DirectPay is quick and easy or use FTPS) if the partners have had large balances due and are asking for withholding.Comment
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