LLCs and S Corporations: Mitigating Self-Employment Tax for Flow-Through Entities

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, August 3, 2022

Recorded event now available

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Course Materials

This course will assist tax professionals in determining whether flow-through income should be subject to self-employment tax. Our panel of pass-through entity veterans will explain how reasonable compensation, payments to partners, and management authority status affect self-employment tax on distributive share income of owners of pass-through entities. They will examine recent cases and the IRS's position on when pass-through income is subject to self-employment tax and consider how possible future legislative changes may affect current law and planning.

Description

Tax advisers struggle with whether distributive share income is subject to self-employment tax for LLCs and partnerships. As a result of this uncertainty, tax advisers often reflexively recommend electing S corporation status solely to mitigate self-employment tax. Before making such an election, tax advisers and their clients need to carefully weigh the potential disadvantages of S corporation status against a realistic estimate of the potential self-employment tax savings and against alternative structures and reporting positions that would allow the LLC members or partners to avoid self-employment tax on their distributive share income.

Listen as our panel of self-employment tax experts explains, based on current law and recent cases, what income from flow-through entities can be reported as exempt from self-employment income and the implications for structuring and classifying business entities. The panel will also highlight possible legislative changes on the horizon.

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Outline

  1. Overview of self-employment tax on pass-through income
  2. S corporations
    1. Self-employment tax considerations
    2. Reasonable compensation
    3. Weighing S corporation status
  3. LLCs and partnerships
    1. The limited partner exception: law and recent cases
    2. Planning implication
  4. Possible legislative changes

Benefits

The panel will cover these and other critical issues:

  • When should an LLC member's flow-through income be reported as self-employment income?
  • How can payments to partners be structured to mitigate self-employment tax?
  • When do the disadvantages of S corporation status outweigh the potential self-employment tax savings?
  • How might future legislative changes affect planning for self-employment taxes for LLCs and S corporations?

Faculty

Browne, James
James R. Browne
Partner
Barnes & Thornburg

Mr. Browne advises clients on the U.S. income tax aspects of domestic and international business transactions and...  |  Read More

Pon, Lawrence
Lawrence K.Y. Pon, CPA/PFS, CFP, EA, USTCP, AEP
Pon & Associates

Mr. Pon has been in practice since 1986 providing comprehensive tax and financial planning, tax preparation and...  |  Read More

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