My husband has an LLC partnership. They paid him in 2016 like an employee and provided him a W2 with a K1. How do we file this?

[keldastar]

Do we ignore the W2 and file K1.

[Carl]

First you need to confirm what type of business this is. Generally, a multi-member LLC files a completely separate 1065 partnership return, and each partner is issued a K-1 for reporting gains/losses on the personal tax return. A W-2 is not, and can not be issued to  the owner of a multi-member LLC.
However, if that LLC filed an 8832 with the IRS requesting to be "treated like an S-Corp", then the partnership has to "act like a S-Corp". IN that case, the business would file it's own 1120-S Corporate return. Then for the owner, in addition to receiving a K-1, that owner can also be an employee of that S-Corp and be issued a W-2 in addition to the K-1.
So what do you have here? A "true" partnership multi-member LLC? Or what the IRS would consider to be an S-Corp?

[Opus 17]

Assuming that the company complied with the rules and it is correct to have both a W-2 and a K-1, then you must report both on your tax return.

You should also have some idea of how much money he actually made from the LLC this year.  Did he get paid a salary AND get profit sharing at the end of the  year?  Do the W-2 plus K-1 equal his earnings?

[keldastar]

W-2 only no profit sharing done as of yet or that I'm aware of. I haven't seen the K-1 yet. He just picked it up today.

[Carl]

@TaxGuyBill check me on this. For an S-Corp, or in your case an LLC treated like an S-Corp, the K-1 is required because there's some kind of minimum distribution that has to be taken, before W-2 income can be claimed.

[keldastar]

Sorry for the confusion. Yes. Distribution was taken via weekly "salary". I'm not sure the delta of the K1 vs W2 from weekly check

[Carl]

Wait for TGBill. He's more knowledgeable on the S-Corp/K-1/required distribution pay stuff than I am. What I'm looking at is this. If you haven't filed already, then you're already late and will pay late fees and all that. So another day or two isn't going to make it any worse.

[keldastar]

We filed for an extension and paid estimated taxes due so we are ok on fees.

[Rick19744]

There isn't a confirmation of what type of entity this is?
1) LLC taxed as a partnership, or
2) LLC which made an election to be taxed as an S corportion?

We need to know which it is to be able to respond.

[keldastar]

He's checking with the CPA. When he checked with her yesterday she said to file both so we are assuming they submitted paperwork to be treated as S-Corp since the CPA had a quick answer.

[Carl]

You shouldn't have to assume anything really. Since you pay a CPA, you should be able to ask them the direct question, and get a direct answer. Not knocking on your CPA. But generally, if you don't ask, they don't tell - usually based upon the mistaken belief that the less you know, the more secure their services are.
Understand that at the federal level (can't speak the state) there is absolutely no difference between an S-Corp, and an LLC that has elected to be treated like an S-Corp. Both are required to "act" like an S-Corp in all aspects of bookkeeping, funds management, investments, compensation, and tax reporting.

[keldastar]

I get it. I know the two are no different in the eyes of the federal level. I just wanted to make sure before I filed and it didn't make sense if they were set up as a "typical" LLC. The question on how it's treated was not asked, only the question of "what do I do with both a w-2 and a K-1" and they said to file both so I can assume it's set up as an S-Corp, but I'll have him ask to make sure.

[Rick19744]

Based on the assumption that this is an LLC that has elected to be treated as an S corporation I have the following comments:

• S corporations, in general, do not pay tax at the entity level.  All earnings / losses are passed-through to the shareholder's based on their respective ownership.  This is done via the K-1 you received.
• S corporation shareholder's need to maintain a basis schedule of their investment.  This is very important as it determines whether losses can be taken at the individual level, taxability of any distributions and the overall gain or loss upon disposition.
• Both the K-1 and the W-2 are reported separately on your personal tax return.  The wages are the earnings for services.  There is no double tax as all W-2 wages are subtracted from any S corporation earnings in arriving at the income reported on the K-1.
• Since your husband works for the S corporation, when you respond to the K-1 interview questions make sure you reflect that he is either active or materially participates in the activity.  This is important as depending on the circumstance, could have an impact on your tax liability.
• Generally, when S corporations generate income the entity will make distributions to the shareholder's to cover the estimated tax liability.
• See the attached link to IRS commentary on basis for an S corporation shareholder:

https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-stock-and-debt-basis