Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

LLC SE Tax Issue Far From Settled

Posted by taxguru on January 23, 2006


Subject: Re: SE tax on LLCs
Where is the grey area regarding SE tax on LLCs? I thought the rule was that if the income would have been subject to SE tax had you earned it personally (sales of inventory, personal services) then you owe SE tax, and if it isn’t subject to SE tax if earned personally (dividends, interest, rents from real property, etc) then you don’t owe SE tax.
Basically, LLC members are treated as general partners of a partnership. The only grey area I’m aware of is whether you can treat passive members of LLCs as limited partners e.g. no SE tax is owed even if the income would be subject to it if earned personally.



While that interpretation may be fine for you, that is by no means widely accepted. 

This has long been a very widely contested issue, which is not helped by the fact that there are no firm laws or regs on this topic. 

Kerry Kerstetter


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