Self-Employed in LLCs

Today TaxMama hears from Peter in St. Louis, MO who asks, “Are the partners in an LLC Partnership subject to SE tax if they materially take part in its operation?”

Dear Peter,

If you’re filing that LLC as a partnership, as you say you are, then absolutely, yes.

The ‘members’ who materially participate will pay self-employment taxes on their share of the pass-through earnings – even if they don’t receive any money from that LLC.
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And those who receive guaranteed payments for their services will pay self-employment taxes on those earnings, too.

Of course, there’s a way to reduce their exposure to SE tax – but that’s the kind of strategy you pay clever tax pros to develop and implement for you – not the kind of information you can get from a free TaxMama column.

In fact, now that I think about it, I can think of several ways to reduce the SE taxes on an LLC filing as a partnership. We’ll be talking about those things in our Tax Boot Camp sessions.

So go talk to your enrolled agent, CPA or tax attorney so you can implement this for 2006.

It’s too late to change this legally for 2005.

Remember, you’ll find answers to basic questions about LLCs and all kinds of tax issues, free.
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