Guaranteed payments for PartnershipLLC/adjusting SE tax on K1

[ktroz]

I have a 2 member PA LLC partnership that has put themselves on their payroll. In their partnership agreement it does not specify any guaranteed payments to be made to them. When I enter salaries and wages on the 1065 do I include their wages in with the others? or do I have to place their wages on the line of guaranteed payments to partners? How do I avoid the return showing that they are paying SE taxes on their W2 wages?

[Dusty2]

Have them undue the payroll - they cannot be on payroll.

[ktroz]

how do they do that?

they went to an attorney and had all of this setup?

[dd4vols]

partners can not draw payroll.  Reclass the net checks to guaranteed payments for each partner. Prepare 1065 and their personal taxes accordingly.  In the mean time, they need to do 941-Xs for each quarter they incorrectly included their wages, the federal withholding, their SS & MC information.  When the partnership gets those refunds, they can distribute those refunds to the partners to kinda make them whole.

If the attorney told them to draw payroll checks with taxes withheld, then they need to get another attorney.  If he told them to draw equal payments and they assumed it meant payroll wages, then the mess is on them.

[sjrcpa]

If the attorney told them to pay themselves W-2 wages, they need a new attorney.

[IRonMaN]

The difference between a bad attorney and a bad brain surgeon is the brain surgeon gets to bury his mistakes. 

[qbteachmt]

I would not go to that same attorney, but perhaps it also was suggested that they should elect to be treated as an S Corp, and they forgot that part?

What a mess.

[ktroz]

after questioning them further I think that is what has happened

they needed to make the election to be an S Corp

thank you everyone!

what a mess

[qbteachmt]

"they needed to make the election to be an S Corp"

Just to clarify, then:

No one pays SE tax on wages.

There is no 1065.

This will be late, if it is for 2021.

And they need to make sure they do all transition tasks, because their old LLC routines and habits will no longer apply, so they need proper guidance. And that attorney had no follow through, and left it to the clients to follow up? Not good enough.