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MRC123
Returning Member

3 Member LLC and Two Members are Married

We have a construction business, small at this time. We just brought on someone else and added them to our LLC as a member.  He will carry an electrical license and will be responsible for electrical jobs. My husband will be responsible for flooring jobs.  I handle all the paperwork, book keeping.  Our operating agreement is to leave 15% of the total from each job in the business (monthly QB fees, license, insurance), both my husband and the new guy get paid (Take a draw) the full amount for what ever job they do minus the 15% and any transaction fees.  I will take a draw of $300 per month for my book keeping duties.

 

My question is taxes.  It wouldn't be fair to do a percentage of 50/50 (me and my husband) if the other guy pulled in more income and say my husband did not or if it went the other way, where my husband pulled in more income. Anyone have a way of doing this?  Maybe adjust the percentage by year?

 

This year will be new for me, since it's just been me and my husband doing the business and we have to get a K-1 generated and I usually use TurboTax, so not sure how to get that generated. 

7 Replies
VolvoGirl
Level 15

3 Member LLC and Two Members are Married

You need to file a separate Business return for the multi member LLC.   That will prepare the K-1 any W2s you need.

 

You need Turbo Tax Business.

The small business program (TT Business) is for 1120 Corporation, 1120S Corp, 1065 Partnership or 1041 Estate/Trust returns and will not do your personal 1040 return.   It  is a separate program from the Desktop Home & Business program or the Online Self Employed version.

 

Turbo Tax Business  is not available to do online or on a Mac.  You can buy the Window's version here.  And you can have both TT Business and TT Home & Business (or any personal version) installed on  your computer at the same time.

https://turbotax.intuit.com/small-business-taxes

 

Desktop Windows System Requirements

https://ttlc.intuit.com/community/system-requirements/help/minimum-system-requirements-for-turbotax-...

MRC123
Returning Member

3 Member LLC and Two Members are Married

Ok, so when we figure out who will pay taxes on what, then we will file a 1065 Partnership then when we do our joint return we just plug those numbers in when it asks us?

martinmarks
Level 10

3 Member LLC and Two Members are Married

Please see a tax pro. You would file a 1065 for the LLC and each of the members would get a K-1. What you described is not a simple do it yourself type of procedure. 

Critter-3
Level 15

3 Member LLC and Two Members are Married

I agree seek local professional help to get educated on the workings of a partnership. No partner will draw a paycheck and get issued a W-2 ever. If this is your first year then you may want to be taxed as an S Corporation instead of a partnership. Please seek instruction on how to keep the books properly for the taxing entity you choose to be.

Mike9241
Level 15

3 Member LLC and Two Members are Married

an LLC can split its income any logical way it wants.  your operating agreement should be revised if necessary to cover the allocation of income and expenses.  I can tell you from my experience things sometimes get ugly because there is no written agreement on how to split the net income. partners will disagree with one another. then things end up in a court of law with expensive attornies. 

rjs
Level 15
Level 15

3 Member LLC and Two Members are Married

Just to clarify what others have said, for tax purposes your LLC is treated as a partnership. It has to file a partnership tax return. Each member is a partner.


The LLC can elect to be treated as an S corporation for tax purposes instead of as a partnership.


You need professional accounting, tax, and legal advice to get everything set up correctly. In future years you may be able to do the tax returns yourself.

 

Rick19744
Level 12

3 Member LLC and Two Members are Married

I just want to clarify a statement that has been made which indicated an LLC can allocate its income any logical way it wants.

That statement is not accurate.

Partnerships and LLC's taxed as partnerships must allocate their income in a manner that is in accordance with very complicated regulations which indicate that income must be allocated in accordance with the substantial economic effect rules.  These rules are very complex.  So the bottom line is you either need to have a tax professional model out your allocations, and include this modeling language in your operating agreement, or you must allocate your income in accordance with a partner / member's interest (also known as PIP - partners interest in the partnership).

I will also recommend you consult with a tax professional in helping you determine what is best for your structure.  Most of what you want to accomplish I believe can be handled through guaranteed payments and then allocate the income based on the member's interest.  But once again, seek some assistance.

*A reminder that posts in a forum such as this do not constitute tax advice.*
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