LLC Compensation

The video tutorial explains how LLC members share profits and losses, highlighting the default rule of equal sharing unless specified otherwise in the operating agreement. It also covers manager-managed LLCs, where members may receive salaries as guaranteed payments, treated as expenses. The tutorial discusses passive income for non-active members, which may not be subject to self-employment taxes, though this is debated.

What is the default rule for profit and loss allocation in an LLC?

• Profits are allocated based on seniority.

• Members receive shares based on their percentage of ownership.

• Losses are allocated only to active members.

• Members receive equal shares regardless of ownership.

Under what condition can special allocations of profits or losses be made in an LLC?

• To avoid taxes.

• To increase capital contributions.

• If there is a reasonable justification.

• To favor new members.

In a Manager-Managed LLC, how is the salary of a member-manager typically treated?

• As a distribution of ownership.

• As a non-taxable benefit.

• As a bonus based on performance.

• As a guaranteed payment separate from ownership distribution.

What is the tax treatment of passive income for LLC members not involved in daily operations?

• It is always subject to self-employment taxes.

• It is taxed at a higher rate than active income.

• It is never subject to self-employment taxes.

• It may not be subject to self-employment taxes.

What is a common point of dispute regarding passive income for LLC members?

• Whether it should be reinvested in the LLC.

• Whether it should be subject to self-employment taxes.

• Whether it should be distributed equally.

• Whether it should be taxed as active income.