An LLC`s corporate agreement states that each year, one of its members holds a 15 percent share of LLC`s profits with a guaranteed minimum payment amount of $US 20,000. This year, LLC`s net income was $100,000, which represented the member`s share of profits of $15,000 (15 percent of $US 100,000). Since he has a guaranteed minimum of 20,000 $US, the member receives $5,000 in guaranteed payment and the other $15,000 than his distribution share. One of the most important decisions to make when creating an LLC is how to pay yourself and other members. You have several options, including guaranteed payments. While guaranteed payments will come closest to a standard salary that LLC members can receive, there are also big differences. To help you choose the right option for your LLC, below is an overview of the different LLC payment methods as well as the pros and cons of guaranteed payments. To the extent that a limited liability company (LLC) does not choose to be taxed as a limited liability company, it benefits from the advantage of transit taxation. This means that individual members, instead of paying income taxes themselves, pay taxes on their share of profit. LLC members can receive either profit-earning distributions or a non-hospital payment known as guaranteed income. Guaranteed payments from an LLC to a member allow the member to receive regular payments. Learn how these payments are processed by the IRS and how they differ from other types of payments.
Like most things, guaranteed payments offer both pros and cons. Below is an overview of the main pros and cons of this payment method….
