Insurance agent as LLC

[JoshinNC]

Here's the deal:

Client is an insurance agent. Receives income via 1099 from various insurance companies. Currently is organized as SMLLC and files Sch. C. Pays SE tax on all income from SMLLC.

Here's my advice:

Client forms new LLC with wife, who is also a licensed agent, (MMLLC), with both being listed as limited members. No SE tax on distributive income from the LLC, only on health insurance premiums paid by the LLC.

Am I missing something? I'd really like to come out like a hero on this one, as it would mean him moving all of his bookkeeping, payroll and taxation work to our firm ($18,000 per year revenue) if I can save him a bundle on SE tax. Said other accountant never even brought this up.

[sea-tax]

Question:
Who will be doing all the work to generate this income? Furthermore who will be making the management decisons for the company, if both partners are limited?

[jainen]

who will

>>Furthermore who will be making the management decisons for the company, if both partners are limited?<<

And who will be doing the insurance sales?

[OldJack]

well... yes and no?

Well... members of an LLC are "limited" by definition of the state charter and federal usually recognizes state and local laws. Of course federal has said for income tax purposes an LLC will be disregarded, but federal doesn't say status is ignored. Limited does not necessarily mean NO activity whatsoever (see purposed rules). Where is the federal tax definition of a limited partner and/or a limited partner as it relates to activity that would make the member a general partner.

Therefore, could at least one member of a LLC-1065 receive guaranteed payments subject to SE tax and the balance of profit split between husband and wife (or members) as limited partners not subject to SE tax? I think so.

[JoshinNC]

Husband is brokerage manager

He manages about 150 brokers throughout the state, so he does not actually "sell" the products, he just gets a cut of his brokers' sales. Whether he gets out the bed in the morning and goes to the office, the golf course or the beach, he's going to get a check. So, nobody in in the LLC is actually selling the insurance, to be technical.

Per TTB, pg. 20-3:

"Under state laws, all LLC members are shielded from partnership liabilities. Since general partners are defined in IRC by virtue of liability for debts of partnership, according to that definition there would never by a general partner in an LLC."

Per IRC limited partners are only subject to SE tax on GP. If there are no GP (all income taken as a distribution) there is no SE tax.

I think they can take GP for health insurance premiums and everything else is not subject to SE tax.

[BOB W]

Non-entity ??

In NY I have run across State Licensing laws that do no allow brokers to be an entity, they must be W-2 ( stat. employee) and/or 1099 to the individual. Your circumstances may be different, but wanted to toss this info into the pot.

[Unregistered]

I hope Josh uses part of his $18,000 for an E/O policy.

[Unregistered]

Ha, Ha, Ha!

As a matter of fact I do have a very good E&O policy. Why don't you step out of the darkness and identify yourself before making such snide remarks?