My husband and I created a multi-member LLC taxed as a partnership for crypto mining in 2021. We purchased the computers and got them up and running last year. Turbo Tax business is asking me and my husband if any of us are managing members or limited members. The computers are running on their own with minimal required maintenance and generating passive income, which member should we categorize ourselves as? This categorization affects self-employment tax?
The LLC must at least have one managing member. That managing member is responsible for the total affairs of the LLC (not just the supervision of the computers).
You have to pay self-employment tax on your share of the net income, not by the classification managing member/limited member, but based on whether you actively participated in the LLC.
Treating the distributive share of a partner as not subject to self-employment tax presents potential risks of litigation with the IRS. Please read this article.
Thank you,
I as an LLC member of 50% don't manage or actively participate in the business, so therefore would I have to pay self employment tax on my share of the net income?
If one of us, either myself or my husband had to be the managing member, it would be my husband. He does not actively participate, since the computers run themselves and generate crypto mining income.
is your split 50/50 in the LLC?
In this case, if you do not pay self-employment tax, you will likely be challenged by the IRS if they examine your return.
It is split 50/50 between my husband and myself. So even though i am not actively participating in the business, i should still pay self employment taxes to avoid questioning from the IRS?
Yes, and to follow-up on the comments from @MinhT1, you need to pay self-employment tax on your net earnings. TurboTax will generate Schedule SE based on your net income.