In IRS Fact Sheet 2008-25, IRS summarized the factors considered by the Eighth Circuit and advised S-corporations to consider them in establishing reasonable compensation of the …show more content…
An LLC is also a pass-through entity, which means your entire portion of profits and losses passes through to you and you must report those on your individual income tax returns. Rev. Ruling 69-184, IRS states that member of the partnership is not an employee of the partnership so the right way to compensate the member for his services is to pay him “guaranteed payments” (section 707) and it is subject to self-employment tax like his share of entity’s profits. Thus, there are no tax advantages to establish as an LLC. If you elect to establish LLC, you will need to pay self-employment tax for your portion of entity’s profit and guarantee payment that you will receive for your