• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
  • Facebook
  • Instagram
  • LinkedIn
  • Twitter
  • YouTube
Big Ideas for Small Business logo

Barbara Weltman

Big Ideas for Small Business, Inc.

Whitepaper download

Subscribe and download our eBook, "150+ Tax Deductions for Small Business A to Z."

This field is hidden when viewing the form
Get the:

  • Home
  • About Us
  • Big Ideas For Your Business
    • Idea Of The Day ®
    • SMB Legal
    • SMB Taxes
    • SMB Financial
    • Small Business
    • Newsletter Archive
  • Services
  • Books
  • Blog
  • Multimedia
    • Videos
    • Radio Shows/Podcasts
  • Be a Guest Blogger

Gimme More Regulations!

May 21, 2015 / By Barbara Weltman

Follow @BarbaraWeltman

http://www.dreamstime.com/stock-photography-regulations-envelopes-pile-official-notification-new-guidelines-word-regulated-as-notifications-overseeing-your-business-image43033172I can’t believe I’m saying this, especially since the federal government is issuing regulations at the rate of about 10 each day (somewhere between 2,200 and 4,500 annually), according to the National Research Service! But there’s one area in which regulations are long overdue and I would welcome them: IRS guidance on self-employment taxes for members of limited liability companies.

Here’s why:

It’s been nearly 17 years since the moratorium on the IRS’s issuing regulations expired (on June 30, 1998). In all this time, there has been very little guidance on how LLC members should figure their self-employment tax. There were, of course, regulations that were proposed in 1997, had guidance for determining whether LLC members should pay self-employment tax on all of their distributive share; these proposed regulations have never been adopted.

Here’s the problem:

General partners in partnerships pay self-employment tax on their distributive share of partnership income, without regard to the size of their ownership interest (i.e., whether they have a majority or minority interest) or whether they actively participate in the business. In contrast, limited partners in a partnership do not pay self-employment tax on their distributive share (by definition, limited partners don’t participate in the day-to-day operations of the business). So why are LLC members, whose share of LLC income is reported on the same Schedule K-1 as used for partners, treated as general partners or limited partners for self-employment tax purposes?

Last year, the IRS clearly indicated that it would issue regulations under Code Section §1402(a)(13) (look at item number 16 in the section for executive compensation, health care and other benefits, and self-employment tax in the IRS Priority Guidance 2014-2015.

That Code Section says:

“there shall be excluded the distributive share of any item of income or loss of a limited partner, as such, other than guaranteed payments described in section 707(c) to that partner for services actually rendered to or on behalf of the partnership to the extent that those payments are established to be in the nature of remuneration for those services.”

Currently, the consensus among advisors is that LLC clients who are merely “silent investors” (like limited partners) do not owe self-employment tax. If LLC members are at the other end of the spectrum in terms of participating in the LLC’s activities by managing its daily affairs, they are more like general partners and are likely subject to self-employment tax. What is tricky is providing advice for those who fall in the middle, acting as mere investors sometimes but participating in business activities at other times.

While the 2014-2015 priority guidance season hasn’t ended this year, it is nearing a close (it ends this June). Where are these promised regulations?

Tags limited liability companies LLC members partnerships regulations self-employment tax Taxes

Primary Sidebar

Categories

  • General Business (498)
  • Guest Blog (109)
  • Homepage (21)
  • Small Business (990)
  • SMB Financial (322)
  • SMB Legal (66)
  • SMB Taxes (324)

Barbara’s Recent Posts

  • Scale Your Business by Stepping Up IP Protection May 29, 2025
  • Disasters Happen: It’s Important to Be Prepared Now May 27, 2025
  • How Work Order Software Transforms Small Business Operations May 26, 2025
  • The Numbers Are Up for Sole Proprietorships May 22, 2025
  • New Business or Project Crowdfunding: What To Know May 20, 2025
  • Old-School Estimating vs. Smart Solutions: What’s Really Holding You Back? May 19, 2025
  • Employees Getting Called to Public Service: What to Know May 15, 2025
  • Not Too Late to Prep for Summer Now May 13, 2025
  • How Will the Next Generation of Learners Affect the Workplace May 12, 2025
  • Moms Know Best: Lessons for Entrepreneurs May 8, 2025
  • Mental Health Challenges in the Workplace May 6, 2025
  • Let’s Celebrate Small Business! May 1, 2025
Awarded Top 100 Small Business Blog medal (link will open in a new window or tab)
Marquis Who's Who 2023 Badge
Top Small Business Blogs (Link will open in a new window or tab.)
8 Financial blogs small business Owners Need to Read. Invoice home.  (link will open in a new window or tab)
Best Small Business Blog, Expertido.org
Top 50 Small Business Blogs 2018
Best Small Business Blogs
BizHumm Top 100 Business Blog Award to Barbara Weltman
FitsSmallBusiness.com: Award for Best Small Business Blog 2017 (link will open in a new window or tab)
FitsSmallBusiness.com: Award for Best Small Business Blog 2016 (link will open in a new window or tab)

Footer

Big Ideas for Small Business logo

Small business ideas, business tax news and small business consulting from Barbara Weltman to provide business owners with the information they need to succeed. Visit our small business blog, Idea of The Day®, small business books and articles on small business taxes, small business finance and small business legal advice.

Contact Us

[email protected]

(772) 492-9593

gacor maxwin situs slot thailand terpercaya situs slot gacor situs gacor akun pro thailand slot bandar togel terpercaya

Latest Tweets

bigideas4sb Big Ideas for Small Business® @bigideas4sb ·
May 31

Starbucks Rediscovers Its Human Side - Branding Strategy Insider https://bit.ly/3H9KwHP #smallbusiness #branding #marketing

Reply on Twitter 1928884285445931367 Retweet on Twitter 1928884285445931367 Like on Twitter 1928884285445931367 2 Twitter 1928884285445931367
bigideas4sb Big Ideas for Small Business® @bigideas4sb ·
May 31

New Business or Project Crowdfunding: What To Know - https://bit.ly/43nclnL #startups #loans #crowdfunding #smallbusiness

Reply on Twitter 1928862798886441182 Retweet on Twitter 1928862798886441182 Like on Twitter 1928862798886441182 1 Twitter 1928862798886441182
bigideas4sb Big Ideas for Small Business® @bigideas4sb ·
May 31

10 Simple Ways to Get Employees to Quit — Improve Your HR https://bit.ly/44KRu01 #smallbusiness #workplace #hiring #employees

Reply on Twitter 1928844506998136977 Retweet on Twitter 1928844506998136977 1 Like on Twitter 1928844506998136977 1 Twitter 1928844506998136977
Load More

Copyright © 2008–2025 Big Ideas for Small Business, Inc  |  Designed by Hudson Fusion

  • Privacy Policy
  • Sitemap