Posted on June 25, 2005 at 11:06:46:
How your business is structured affects its tax obligations. Partnerships and limited-liability companies, though legally different, are treated the same for tax purposes. Neither pay any income tax (even though they are required to file tax returns to declare business income). Rather, any income or loss is reported on the individual returns of partners or “members” (owners of LLCs). They get profit and loss information on a Schedule K.
The guaranteed payments, like salary, paid to partners or members is deductible as an expense from the entity’s gross income, and subject to self-employment tax. There’s no withholding, so estimated taxes must be paid to cover the income.
Any unreimbursable partnership or LLC expenses paid by a partner or member can be deducted wholly, not limited by a 2-percent-of-gross-income floor.