Partner wages paid on W-2

[mhkdgal]

An LLC with two members files taxes as a partnership.   We are just now preparing and filing 2016 tax returns and have discovered the two members paid themselves W-2 wages in 2016.  I know this is incorrect and these amounts should have been categorized as guaranteed payments.    I am curious how others would recommend correcting this at this point.   I am thinking we should file amended W-2s, but since it is from 2016, can we just report the amounts as guaranteed payments on the 1065 (including the 1/2 of the FICA taxes paid by the LLC).   

[sjrcpa · Accepted solution]

I wouldn't do Guaranteed Payments because on their 1040 they'd need to report the GPs and the W-2s.

Yes this is wrong. I'd prepare the return with the info given. On the 1065 deduct the wages. CAGMC.

You probably have this for 2017-2020, too?

Advise them of the error of their ways and have them stop.

[mhkdgal]

Thanks for your reply. Yep, they took w-2 salaries in 2017 through 2019 also.  They didn't in 2020 due to lack of funds and covid shutdown.  Thanks for your input on how to handle this.  What does CAGMC in your reply stand for?    

Thank you!

[IRonMaN]

Come And Get Me Coppers.

And I also would go the wrong way route and file as is.  No use kicking a dead horse.

[abctax55]

@mhkdgal 

CAGMC was one of the favorite says of our dear departed friend on this forum:

Chuck aka Archie.  Those of us that knew him still miss him; I can't see a Mazda Miata without thinking of him. 

[IRonMaN]

Yeah, those Miata's do the same thing to me.

[JJK]

Were all these W2 payments relating to their ownership?   If yes, I agreed with all above. (GP)   

If these W2 payments were relating to their job function, partners CAN have salary reporting on W2. 

[IRonMaN]

Are you really sure about that one?

[abctax55]

Yeah, @JJK  - got any backup or a cite for your position?

[qbteachmt]

@JJK 

Just to be clear, this is wrong for a partnership filing as a partnership: "If these W2 payments were relating to their job function, partners CAN have salary reporting on W2"

I'd hate for someone to find this comment and believe it.