K-1 to Earned Income & LLC's

Discussion in 'Professional Trading' started by pdwst33, Jul 12, 2007.

  1. pdwst33


    Working for a "Prop Firm" LLC that distributes a K-1 to me. An accountant I've just met with suggests that I create a single member LLC, let's call it XYZ Capital, which will be a sub LLC of the Prop Firm LLC. Since the K-1 is not earned income, the accountant also suggests creating a single member "Management" LLC...let's call it XYZ Management. He then said that the Capital LLC would "pay" the management LLC a "fee" which would convert the K-1 into Earned Income.

    Does anyone have a set-up similar to this or has heard anything along these lines? I believe the Robert Green Trader Tax book suggests a similar set-up. I'm wondering how successful, or what obstacles people have had with these circumstances. Thanks.