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rstephenson
New Member

How do I account for wages paid to a partner in a 4 member LLC? Currently set up as owner's draw, but owner has -$40,000 equity.

The other three partners have not taken cash out of the business. The paid partner is paid an hourly wage for working in the store as his full time job. Utilizing the owner's draw, his equity is down to -$40,000 while the other owners remain positive. What is the correct way to account for this in Quickbooks?
1 Best answer

Accepted Solutions
Rick19744
Level 11

How do I account for wages paid to a partner in a 4 member LLC? Currently set up as owner's draw, but owner has -$40,000 equity.

A member of an LLC that is treated as a partnership for tax purposes cannot be an employee (can't receive a W-2).

Any remuneration paid to members is treated as a guaranteed payment.  Reported as an expense on page one of the 1065 and also reported separately on the member's K-1.  This is considered self-employment income for the member.

This is not an equity draw (distribution), but an expense of the company and income to the member as a guaranteed payment.

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

View solution in original post

4 Replies
Rick19744
Level 11

How do I account for wages paid to a partner in a 4 member LLC? Currently set up as owner's draw, but owner has -$40,000 equity.

A member of an LLC that is treated as a partnership for tax purposes cannot be an employee (can't receive a W-2).

Any remuneration paid to members is treated as a guaranteed payment.  Reported as an expense on page one of the 1065 and also reported separately on the member's K-1.  This is considered self-employment income for the member.

This is not an equity draw (distribution), but an expense of the company and income to the member as a guaranteed payment.

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

View solution in original post

espplanconsult
New Member

How do I account for wages paid to a partner in a 4 member LLC? Currently set up as owner's draw, but owner has -$40,000 equity.

Thank you for this answer.  This threw off my state balance sheet last year, but I was able to correct this mistake with your answer here. Appreciate it!
alanrhinescpa
New Member

How do I account for wages paid to a partner in a 4 member LLC? Currently set up as owner's draw, but owner has -$40,000 equity.

I have a similar situation, and agree with the guaranteed payment treatment.  What about W2/W3? File amended?  If I don't file amended W2/W3, I would assume that the IRS will take issue with it.  And what about FUTA SUI taxes? Are those also guaranteed payments?

Thanks!
rstephenson
New Member

How do I account for wages paid to a partner in a 4 member LLC? Currently set up as owner's draw, but owner has -$40,000 equity.

Perfect...Thank you for your answer.
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