Skip to Search
Skip to Main Content
Main Content

 

News & Publications

 

Godfrey & Kahn Updates

 

Press Room

Announcement

Tax News: Self-Employment Tax

Winter 1995

Limited liability companies or "LLCs" have become popular as a vehicle for organizing new business ventures. LLCs can combine the limited liability benefit of a regular corporation with the flexibility and one-level of taxation benefit of partnerships. However, it has been unclear whether income allocated to individual, as opposed to corporate, members of LLCs is subject to self-employment tax.

On December 29, 1994, the Internal Revenue Service published proposed regulations in this area. Basically, if an LLC is "member-managed" and engages in a trade or business, the regulations appear to provide that all income, whether or not distributed, is subject to self-employment tax. In general, many LLCs elect member management in filing their articles of organization with the state, even though they have boards of managers and officers. This is because member-managed LLCs are more likely to be taxed as partnerships. However, using the member-managed feature to achieve this important goal of taxation as a partnership may come at the cost of self-employment tax. This includes the 2.9% Medicare tax on net earnings from self-employment on which there is no cap.

Rentals from real estate and from personal property leased with real estate are generally not included in earnings from self-employment in all cases unless the individual is a real estate dealer and the rentals arise from property held for sale to customers in the ordinary course of business

Although the regulations are not final, taxpayers should consider potential exposure to self-employment tax when deciding whether to do business as a member-managed LLC.

Practice Areas

Please wait while we gather your results.

COVID-19 RESOURCE CENTER

Get practical insights on COVID-19 legal issues for your business.

Visit Resource Center

Media Contact 

If you have a media request or need an attorney with particular knowledge for comment, please contact Kyle Mondy, Marketing & Communications Manager, at 414.287.9481 or kmondy@gklaw.com.

Subscribe.

Subscribe today to receive firm newsletters and blogs, client updates, seminar announcements, and more according to your preferences and areas of interest.

GET IN TOUCH

For more information on this topic, or to learn how Godfrey & Kahn can help, contact our COVID-19 Response Team.

Disclaimer and Legal Notices

Copyright © 2020 Godfrey & Kahn, S.C.

Attorneys at Law - All rights reserved.

 

Client Login

 

top