I am the sole member of SMLLC--can I deduct, on Schedule C, the wages the LLC paid me by guaranteed payments?

[Anonymous]

Guaranteed payments here defined as paid regardless of profit or loss and in an amount considered reasonable compensation for work.  I have accounted for these payments/wages on Schedule SE, but I'm unsure about whether paying myself is a deductible expense as a single member LLC--answers I am finding seem to say that guaranteed payments are only deductible on Form 1065, which I can't file as a SMLLC, only as a partnership.  If that's the case, I am liable for much more than I planned for!  This should be reasonably considered COGS, but not sure.   

Please, TurboTax, you're my only hope!

[MinhT · Accepted solution]

For a single-member LLC which is a disregarded entity and for which the income/expenses are reported on Schedule C of the tax return of its owner, you cannot deduct any payments made to yourself (as guaranteed payments or otherwise).

The rationale is that if you deduct these payments to yourself, then you would have to report these payments as income, which will give exactly the same tax result.

[Anonymous]

Thank you for your response--but I am still not clear.  I am reporting my guaranteed payments as income--in Schedule SE.  Is that incorrect?  My read of your answer makes it seem like I should not be reporting my guaranteed payments at all.

[MinhT]

If you do not deduct the guaranteed payments on Schedule C, you do not report them as income.

[Anonymous]

That's wonderful.  Thank you.

[szam2]

hi@MinhT 

If the owner of the llc is a single member foreign non resident and is paid this guranteed payment in the foreign country monthly where he does not need to declare that guranteed payment in the US personal return but in their foreign return, are they still able to deduct the guranteed payment on schedule c, and not report the guranteed payment in the personal return, especially since that country has treaty.

Thanks!

[PatriciaV]

The same logic applies. A single-member LLC is the same as the individual. If you report the guaranteed payments on Schedule C, you also report them as income. The two entries cancel each other out.

A foreign country may require you to report the guaranteed payments because they are paid by a US company. But for a US federal tax return, you would not report the guaranteed payments as wages or income.

@szam2