2 Member LLC Owner Draw & Paying Tax for Work Credits

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Topic Author
k3vb0t
Posts: 293
Joined: Mon Jun 02, 2014 4:42 pm

2 Member LLC Owner Draw & Paying Tax for Work Credits

Post by k3vb0t » Tue May 14, 2019 1:01 pm

In my ongoing quest to generate work credits for my stay at home wife in order to maintain Social Security Disability eligibility, we formed a 2 member LLC last year for online work we do.

Last year due to set up costs our Schedule K1s were negative $24.

This year we're making money to the tune of $250-300/month, but I haven't done a draw yet. I'm planning on an owner's draw of $1,000 split 50/50 sometime in the next month. (We are 50/50 owners.)

1. Since we're married and use joint accounts, is it okay to deposit the $1,000 all together or do I need to do 2 separate transactions of $500 each to different accounts?

2. We file our taxes as married filing joint and have a joint EFPTS account. Is it okay to pay the estimated self employment tax (15.4% of the draw) together?

3. Will we have to wait until we file our taxes to see how this hits her account at SSA.gov? Essentially are the work credits based off of her K-1 income? Our goal is to get her minimum 1 work credit this year, so I need to make sure $1,380 lands on her income report for SSA. Do we need $1,380 for her, or $1,380 plus the 15.4% self-employment tax (so $1,631.20)?

Thanks in advance!

Spirit Rider
Posts: 10512
Joined: Fri Mar 02, 2007 2:39 pm

Re: 2 Member LLC Owner Draw & Paying Tax for Work Credits

Post by Spirit Rider » Tue May 14, 2019 1:26 pm

My first question is; why did you create an LLC/partnership for such a small amount of income. You could have just used a sole proprietorship and elected to file as a qualified joint venture QJV without the complexity of a partnership return. If you are in a community property state, you can still file as a QJV even with the LLC/partnership.
  1. Any distributions of partnership ordinary income should be to individual partners regardless of marital status.
  2. Yes, at this point you are just meeting your MFJ joint tax liability, but why would you even bother making such small payments. Your only responsibility is to meet one of the safe harbors for your total tax liability from all income sources.
  3. Your SS earnings credits will only reach the SSA some time after you have file your income tax returns with the attached Schedule SEs. The earnings credit will be based your respective Schedule SE Line 4/4a (Schedule K-1 (Form 1065), box 14, code A) * 92.35%.

Topic Author
k3vb0t
Posts: 293
Joined: Mon Jun 02, 2014 4:42 pm

Re: 2 Member LLC Owner Draw & Paying Tax for Work Credits

Post by k3vb0t » Tue May 14, 2019 1:32 pm

Spirit Rider wrote:
Tue May 14, 2019 1:26 pm
My first question is; why did you create an LLC/partnership for such a small amount of income. You could have just used a sole proprietorship and elected to file as a qualified joint venture QJV without the complexity of a partnership return. If you are in a community property state, you can still file as a QJV even with the LLC/partnership.
1. Because I didn't know any better and,
2. We don't plan on it being this little per month forever
Spirit Rider wrote:
Tue May 14, 2019 1:26 pm
  1. Any distributions of partnership ordinary income should be to individual partners regardless of marital status.
  2. Yes, at this point you are just meeting your MFJ joint tax liability, but why would you even bother making such small payments. Your only responsibility is to meet one of the safe harbors for your total tax liability from all income sources.
  3. Your SS earnings credits will only reach the SSA some time after you have file your income tax returns with the attached Schedule SEs. The earnings credit will be based your respective Schedule SE Line 4/4a (Schedule K-1 (Form 1065), box 14, code A) * 92.35%.
1. So cut individual checks to us, got it
2. So as long as I pay 100% of last year's taxes throughout the year, I don't need to send in additional estimated payments?
3. Thanks for the info on the SSA credit. So she'll need $1,494.32 in her share of owner's draw to get to $1,380.

pshonore
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Re: 2 Member LLC Owner Draw & Paying Tax for Work Credits

Post by pshonore » Tue May 14, 2019 1:56 pm

AFAIK you'll need operating earnings in Box 1 of the respective K1 to have self-employment earnings. Doing a 'draw" is not quite the the same thing.

Topic Author
k3vb0t
Posts: 293
Joined: Mon Jun 02, 2014 4:42 pm

Re: 2 Member LLC Owner Draw & Paying Tax for Work Credits

Post by k3vb0t » Tue May 14, 2019 1:59 pm

pshonore wrote:
Tue May 14, 2019 1:56 pm
AFAIK you'll need operating earnings in Box 1 of the respective K1 to have self-employment earnings. Doing a 'draw" is not quite the the same thing.
We aren't paying ourselves a salary (inconsistent income) and would be paying out of that operating income. My understanding is you either pay yourself a set salary or you do a draw, but the draw can come from net profit in the business.

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