Hello, Schedule K instructions for the Analysis of Net Income (Loss) per Return says "Report all amounts for LLC members on the line for Limited Partners". The software enters the net income in the (iv) Partnership column even though we are individuals and we each report ourselves as individuals on line I1 on Schedule K-1, “What type of entity is this partner?”. And Schedule K also reports the income on row 2b, Limited Partners instead of 2a, General Partners. I am not sure why the Schedule K instructions direct LLC members to report as Limited Partners. This is confusing to me and I am wondering if there is an explanation. Afterall, we are hardly limited as we both perform all the activities and services of the business.
On Schedule K-1, Item G, I selected “General Partner or LLC member-manager”. But this is in conflict with the Analysis of Net Income (Los) per Return section, as described above. I view our structure (and business, for that matter) as very simple. The Form 1065 and Schedule K/K-1 instructions seem to make reporting more complicated than it needs to be!
Any assistance would be greatly appreciated.
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A few comments on your questions:
A few comments on your questions:
Thank you for the information. I am still not clear on whether we would select, for Part ll Item G, "General partner or LLC member-manager" or "Limited partner or other LLC member". I assume we have to select one or the other per the IRS instructions.
We do not have a designated managing partner in our Operating Agreement, we are both simply members of an LLC. There are no other members but for us two. We both fully participate in the business of the company as cosmetologists. So in that sense, we are not limited partners either.
For Item H1 we check "Domestic Partner". And for Item I1, "What type of entity is this partner?" we check "A" for active individual.
For whatever reason, Part lll, Box 14, "Self-employment earnings (loss)" is empty even though Box 1, "Ordinary business income (loss)" includes a positive amount of about $20K for each of us (not a great first year but we'll hopefully grow). This may be due to the fact that we checked "Limited partner or other LLC member".
Reading the IRS Instructions, I see this: "Generally, a limited partner's share of partnership income (loss) isn't included in net earnings (loss) from self-employment. Limited partners treat as self-employment earnings only guaranteed payments for services they actually rendered to, or on behalf of, the partnership to the extent that those payments are payment for those services." There are no guaranteed payments in our business operations.
But again, we are not limited in the context of our ability to manage the LLC business. So, in that sense, we are both actively managing the business? Even though neither of us are identified as a "managing partner" in the LLC Operating Agreement...although the agreement describes our LLC as a ""Multiple Member-Managed Limited Liability Company". Hmmmm, maybe I answered my own question? Perhaps we would each select General Partner after all....even though page 58 of the IRS Instructions for Form 1065 for reporting Analysis of Net Income (Loss) per Return says, "For each type of partner shown on line 2, enter the portion of the amount shown on line 1 that was allocated to that type of partner....report all amounts for LLC members on the line for limited partners. Again, this guidance adds to the confusion.
Any assistance would be much appreciated!
A limited liability company (LLC) managing member is both an LLC owner and someone who keeps the business running on a day-to-day basis. The managerial aspect generally includes having the authority to make decisions and enter into contracts on behalf of the business.
In a member-managed LLC, all owners (members) also act as managers who can serve as agents of the business and bind the business contractually. Specific responsibilities of individual members can vary depending on what the members of that particular business decide is best for the company.
A member-managed LLCs can have more than one manager.
In your situation, I see nothing wrong with not checking the limited partner/ other LLC member box
Based on your facts, you both are active in the business operations, and as such, are material participants.
If you do not check the box "LLC member-manager", TT will not report the income as SE income; as you have noted in your response. This income should be subject to SE income tax and the only way to get TT to report that in box 14 is to check the box as noted above.
Don't get hung up on the semantics of "limited liability" based on your question and facts.
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