Salary to LLC Owners
Posted By Administrator
A common request from some LLC owner(s) is to pay themselves a salary. Though it is possible it is unlikely this appropriate especially if the owner filed his or her own LLC filings. Single member LLC’s by default are treated as Sole-Proprietor (an ignored entity and with business income reported on schedule C of his or her personal tax return). Likewise multi-member LLC’s are by default treated as Partnerships (with business income reported on tax form 1065 with income and losses passed through to the partners).
In either case a salary is not permitted by the LLC owner(s). Instead the owner or partners can take distributions which can or can not have a bearing on their taxes. Regardless traditional paychecks and remittance of taxes through the organization is not appropriate.
So what can be done? In this case the LLC owner(s) have a couple options.
1) Continue to take distributions in liu of salary.
2) File form 8832 with the IRS to elect corporate tax status of the LLC with the IRS.
Under option (2) once the IRS has accepted the 8832 the LLC will be recognized as a corporation for tax purposes, and the owner(s) can generally begin to tax a salary.
However, special care should be taken before such decisions are made since election of corporate tax status can not generally be changed for 60 months after the effective date of the filing.
If this or other tax questions are concerning you please feel free to contact me (free of charge) and I will advise you of your available options. I can reached at (443) 927-9161 (MD), (703) 637-9881 (DC & VA), or by email at travis@ramlcpa.com.
Thanks,
Travis Raml, CPA
http://ramlcpa.com/