If I work for an LLC that pays a K-1 and requires that I contribute my own capital to become a member, I'm under the impression from the Green Trader Tax book/site that my K-1 gains are not "earned income." How do you guys that are under similar arrangements do business then? Do you create separate sub LLC's and then pay yourself a a fee as the owner/manager to turn the K-1 gains into earned income? The reason I'm concerned with the "earned income" is that you can only get tax advantages like setting up and funding a retirement plan, deducting health insurance premiums, and deducting business expenses. I do plan on consulting Green or his associates about this, was wondering if anyone has had experience with a similar arrangement. Thanks
Your K1 is not earned income, and so no FICA tax. I don't see any benefit of setting a sub-LLC. My understanding is that if you set up a sub-LLC, you will be taxed as a proprietor, and so you have to pay FICA tax. If GreenTax advises otherwise, please let us know.
Okay I understand that about the FICA tax...but does that simply mean that being a member of an already formed LLC means that you receive no tax benefits that you would receive if you formed a SMLLC? In other words, you guys that work for a VTrader, Assent, Bright, Schonfeld, etc...LLC firms, you get your K-1, but you can't deduct anything even if you work from a home office?
You can still deduct some of the expenses such as internet connection, news subscription, and home offices, but not for benefits such as pension plan, medical plan nor tuition etc. If you want a huge deduction, you better check with professional accountants.
Thanks, yes I'm consulting with Green and/or a trader tax accountant in my area to shore up these issues. I just keep hearing from the LLC firms themselves that "most guys set up LLC's", which would be sub-LLC's, within the framework of the firm organized LLC and am trying to rationalize why they do this.
just shell out $150-200 and get a CPA to do it for you. they know the tax laws and what you can and cant do better than any of us (unless you happen to be a practicing CPA). i looked at green before and their rates are crazy. i think they quoted me like minimum $1,000 to do a quick and easy return.