An LLC can elect to change it's tax classification to that of an S corporation. Under this classification, member managers must be paid a "reasonable wage" that meets the standards of the industry in which the LLC operates. Instead of self-employment tax, the wage is subject to payroll taxes paid by the LLC and standard personal income tax. However, a member manager also may receive a share of profit separate from the wage that is reported as passive income, which can represent a significant tax savings if profits are high enough. Wages are counted as business expenses, and all income and expenses for the business are divided among the members and reported on personal tax returns. The division of income, however, is based on the percentage of ownership of each member.
An LLC also may elect to be taxed as a C corporation, which allows the company to not attribute a portion of its profit to any member. Under this classification, member managers still must be paid and profit shares are distributed in proportion to each member's percentage of ownership. (However, if members decide not to distribute the entire profit), the undistributed portion is not subject to personal income tax. An LLC taxed as a C corporation must pay a corporate tax on its entire profit and each member reports the share of distributed profit as passive income, the so-called "double tax" that C corporations face. Undistributed profits still may represent a tax savings by not pushing a member into a higher tax bracket if profits are high enough.
Even if no profit, they can be paid for management.
That how some LLC's make it good for managers, but nothing or no one else.
But, I'm far from an expert on this.
AI
