I have a quick question on SE tax for an LLC.
I am bordering the line between investor and dealer.
I am mostly concerned about the SE tax as I flip properties so depreciation (short term holding period) is not a big issue.
I know there is a limit on FICA tax per year (around 84K in income)
My wife and I have a 2 member LLC. Currently the income split is 99% for me and 1% for my wife.
I have a full time job and pay the max for FICA in a year. My wife is a stay at home mom with no other income.
If I am classified as a deale in RE, would I still be subject to SE tax since I have already hit the FICA max? Will my wife be subject to SE tax since she has no income.
Will the fact that my wife only gets 1% of the income mean she will be hit with SE tax for this percentage of our profits?
I am mostly concerned about the SE tax as I flip properties so depreciation (short term holding period) is not a big issue.
There is no depreciation allowed on your flip property.
I know there is a limit on FICA tax per year (around 84K in income)
Yes, the maximum income subject to Social Security withholdings was 90K last year. Any W-2 income and/or self-employment income that exceeds $90K in Social Security earnings (from any source) is not subjected to any further Social Security withholdings until Congress decides to change the status quo.
My wife and I have a 2 member LLC. Currently the income split is 99% for me and 1% for my wife. If I am classified as a deale in RE, would I still be subject to SE tax since I have already hit the FICA max?
If you are flipping property, you are already a dealer to real estate. Don’t wait for an audit a few years down the road for the IRS to “classify” you retroactively.
Yes, you are still subject to self-employment income (payroll) taxes. There are two components to the payroll taxes, social security and medicare. The Social Security component is 12.4% while the medicare component is 2.9%. After you have earned $90K in social security income (from all sources) during the year, the rest of your earnings for the year are exempt from further social security taxes. However, there is no limit on the amount of income that is subject to medicare taxes.
In your situation, if you have already reached the max social security income threshhold, you will still be liable for the medicare tax on any additional earnings.
Will my wife be subject to SE tax since she has no income.
Will the fact that my wife only gets 1% of the income mean she will be hit with SE tax for this percentage of our profits?
Okay Dave, so do I understand right that with a 2 member LLC of husband and wife the husband and wife are considered seperate entities? Therefore in theory it would be best for one spouse to take ALL income from the LLC? Have a similar situation here m’self
Husband and wife, if both members of the LLC, are partners. The LLC is treated as a partnership.
An exception applies to community property states, where an LLC with both spouses as the only members could still elect to be treated as a disregarded entity for tax purposes.
How did you elect your LLC to be treated for tax purposes? If you did not make a specific election, then your LLC is a partnership.
Let’s just say that the cold medicine was talking and I was nodding like a bobby headed dog when it was written… So to be quite honest I haven’t a clue in the WORLD… I’ll dig out the paper work later and check
All this assumes that the multi-member LLC is being taxed as a partnership. If you elected corporate taxation, the corporation would be paying the income tax, NOT subject to SE tax. Distributions of cash, though, would be taxed again as a dividend (the “double taxation” issue) but in some cases this is preferable to SE tax.
This does not apply to a corporation electing sub S (S-Corp) taxation, which is more like the partnership taxation in this regard.
