| |
Does the IRS tax you on the actual cash distributions received or your member allocations? I am forming an LLC, and I want to retain 51% voting rights while my partner will have 49%. I want to distribute the profits evenly to him, myself and a third-party developer at 33% with special allocations. We are building an online software application and have virtually no money to pay the developer and don't want to dole out ownership shares. Thanks, David | | 
If this is the case, I wouldn't even take ownership into account. I would issue your programmer a Profit Sharing Agreement which gives a specific definition of the profits being shared (i.e. if it is "net" profits, then what will be deducted) and pay him as an independent contractor. This will be tax-deductible to your company and you can then share the remaining profits with your partner according to your ownership percentage.
Having a software company myself, this is how I've done it in the past. I would also avoid locking anyone in for the future. The best way to do this is to create benchmarks for productivity and issue profit-sharing "points" once those benchmarks are reached. That way, if the programmer doesn't live up to his or her end of the bargain, you aren't required to involve them in any more profit-participation than you've already obligated yourself to and you can find someone else to fill the spot. ;-)
Also, to answer your first question, if your LLC is subject to partnership taxation (it sounds like it is) then the IRS will tax you on the allocations, not the actual cash distributions, however, varying the allocations is not as easy as it sounds and best to be avoided if possible. The above scenario I outlined for you should be sufficient. -Jen | | |
|
MyLLC.com is not a law or accounting firm and neither MyLLC.com nor any of its employees provide legal or accounting services or advice and should
not be relied upon as such. If legal or other accounting assistance is needed, we recommend that you seek the services of a competent professional.
The content on MyLLC.com should not serve as a substitute for legal advice from an attorney or accountant familiar with the facts and circumstances
of your specific situation.
|
|