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LLC ROADMAP (Operating Business with Rental Activity)

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 ACCOUNTING (You have TWO businesses)

• The bookstore or contracting business (example) is an operating business. Keep revenue and expenses separate from the rental business. This does not mean a separate checking account but it may be easier to maintain records. That is up to you.
 
o The bottom line profit is taxable for income and self-employment tax.
 
• The rental part is called a passive activity. Keep revenue and expenses separate from the bookstore.

o The bottom line profit is taxable for income tax but NOT self-employment.
 

PAYMENTS TO MEMBERS

1. Just take it. That is called a DRAW. Partners are NOT required (unlike a corporation) to DRAW according to ownership percentage. The DRAW itself is not a taxable event. The members (that’s what partners are called in an LLC – members) are taxed on the bottom line profit whether they take it (DRAW) or not.
 
2. There are NO W2 wages in partnership accounting.
 
3. If partners/members are being paid the equivalent of wages, that is called a GUARANTEED PAYMENT. That amount is deducted by the LLC as an expense. It is income taxed and self-employment taxed to the partner/member receiving the GUARANTEED PAYMENT.
 

SUMMARY

• Payment for services would be a GUARANTEED PAYMENT. Deductible by the LLC and taxable to the recipient.

• Just taking money (DRAW) is not in itself a taxable event, it is just money being transferred. The LLC does not receive a tax deduction.