Hello,
I have a client that is a MMLLC taxed as a partnership. We are cleaning up the books for 2022 and 2023. These guys have not setup a salary, so as of right now all payments received have been anticipated as income distributions, not guaranteed payments. They are currently splitting all income roughly, 1/3 to each. The only debt is a small credit card.
However, it appears that they are paying the one partner about 5% more than the other partners or so and have paid out pretty much all the left over income in the company once they finish a project. What this has caused is for each partner to have distributions in excess due to the small credit card and the one partner receiving more than his ownership %.
As long as the partners are okay with this, I believe that taking distributions in excess of basis is a more favorable position than allocating a salary and losing out the QBID on that income as well as having to pay SE tax on the guaranteed payments (especially for those received to the one partner whose payments are higher than his ownership %)
Can anyone give me any reason against suggesting that they just keep it as is as long as the current payment structure is within the terms of their operating agreement?