Real Estate - office

[JON]

Office is new-LLC has 6 partners. They are going to file a 1065. Are the specific commisionssions to the "partners" guaranteed payments or 1099(does state law rule?).

Each partner pays there own personal business expenses-i.e. advertising, auto entertainment etc.-if commissions are guaranteed do we then take the deductions for partner's expenses on the Schedule E and make sure membership agreement specifically says that????

What kind of retirement can the partners/1099 real estate salemen set up. Each net will be drastically different.

Any sources for real estate office tax/accounting does nay know of...

Thanks.

[Bees Knees]

I would treat the specific commissions as guaranteed payments simply to resolve the SE tax issue. The Line 1 K-1 amount of an LLC is not subject to SE tax, according to popular opinion. The exception is if it represents payments for services rendered, which fits the specific commissions category.

Each partner’s unreimbursed business expenses would then be deducted on Schedule E on the next line under the amounts reported on the K-1, and these deductions would also offset SE tax.

For retirement purposes, I would suggest the SIMPLE-IRA, which is the least expensive for the partnership and allows the greatest individual choice in the amount contributed. A SEP would also work, but that would have to be funded solely by the partnership.

[JON]

Could you

There is a great deal of differences in what the owners want for a retirement plan.. Could you 1099 commissions to owners-let them Schedule C that activity and only let the administrative net be kept in the LLC? Is that an alternative or LLC should report all???

[Bees Knees]

I would not send 1099s to the owners. They are not independent contractors working for the LLC.

If everyone is so independent of each other, I wonder why you would form the partnership in the first place? It sounds to me as though each partner is really an independent business and the only purpose of the LLC is to pool expenses. I would have each owner run their own separate businesses as single member LLCs, and then have each pay in a certain amount to the group for their share of group expenses. That way, each is free to decide their own retirement plan needs. The group could be operated as a separate LLC in case they wanted to share a percentage of each partner’s profits in a group setting.

[JON]

Real Estate Agency

These guys formed the agency to acquire a franchise, licensing, common office, multiple listings, website etc-but as any agency they make their money on their own selling. As they get other agents, nonowners they may may make some money on their activities.

[Bees Knees]

Then I think it would be ideal for them to each operate as their own separate business. They could each operate as their own LLC, and in turn, each LLC could be a partner in the group LLC. The individual LLCs pay a percentage of their profits into the group LLC for common expenses. If new agents come into the business as non-partners, they would be hired by the group LLC to act on behalf of the group LLC. At the end of the year, any left over profits can then be distributed back to the individual LLCs who are partners of the group LLC.

That way, you have a level of independence, giving each individual LLC the ability to set up their own retirement plans and pay for their own expenses. And you also have the group LLC giving them the ability to handle certain things as a group such as the franchise, licensing, and common office issues.