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Solved

Can a multi-member LLC pay for it's members tax liability

Forum|Forum|4 years ago
January 9, 2022
1 reply
0 views

We have a multi-member LLC (only two family members). Most of the profit gets reinvested directly into the business (so there isn't really any take home money). Other than some guaranteed payments (based on service's rendered to the LLC) there isn't really much money we are taking out of the business. Therefore, are we able to have the business reimburse us for the tax expenditure as related to portion of the tax liability? Is there anything disallowing us to also reimburse ourselves for the tax burden as related to guaranteed payments?

Best answer by Mike9241

nothing prevents reimbursement for the taxes. but the reimbursement would be a distribution to the members (it's their tax liability, not a tax imposed on the LLC) and not a tax deduction to the LLC. the distribution would be reported as such on the k-1 and is not deductible by the members but does reduce their tax basis. if distributions exceeded tax basis, that's taxable income - taxed as capital gains.

Answer

Level 15

nothing prevents reimbursement for the taxes. but the reimbursement would be a distribution to the members (it's their tax liability, not a tax imposed on the LLC) and not a tax deduction to the LLC. the distribution would be reported as such on the k-1 and is not deductible by the members but does reduce their tax basis. if distributions exceeded tax basis, that's taxable income - taxed as capital gains.