In an LLC, does it make sense that our K-1s are all the same when we each took different amounts of draws for doing different amounts of work?

[LLC-oolJ]

I have a multi-member LLC. When we get projects we decide ahead of time who will get what share of the income. We don't have much overhead and we usually draw what we agree is fair based on the amount of work, leaving a small amount in the account to pay for expenses that come up. Now it is tax season and because we started the company together (each member has a 33.33% share), is it correct that we each have the same K-1 amount added to our personal income? (Ordinary business income split into thirds)?

So for example, Partners A and B did most of the work so drew most of the money. Does Partner C have to report the same amount of income just because he is a 33.33% member in the operating agreement? Seems like A and B should be taxed more for earning more and Partner C should be taxed less. It doesn't make sense to me that he should owe the same amount of taxes because in reality he participated less and profited less.

Any advice is welcome. Thank you!

[LudwigVan_fan]

Generally, the ownership percentage of the profits and losses control the amount of income and expenses reported on Sch K-1.  I understand what you are trying to do.  For 2018, it is probably too late to change anything other than reporting 1/3 of the ordinary income and other items on each K-1.  Draws are treated as withdrawals out of the capital account(s).

However, for 2019 and forward, you change your LLC agreement to reflect some guaranteed payments.  Since I presume you are treated as a partnership as opposed to an S corp, under partnership rules, guaranteed payments are treated as income to the partner, and a deduction to the partnership, thus reducing the ordinary income of the partnership and the share of ordinary income to be reported by the partners not receiving the income from those projects.

There is such a thing as specially allocated income and expenses in partnerships, but have been out of the business too long to remember anything about it, other than to know it existed.