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Tax issues for Don and Jane in withdrawing money

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The ABC Company was incorporated (as an LLC) two years ago. The success of the company is exceeding the owners' expectations. The land owned by the company is used as a site for special events and parties. The rental income from the events and fees for services rendered at these events are substantial for a new business.

The ABC Company has budgeted a profit of $300,000 for the third year of business operations. To date Don and Jane have not been compensated or withdrawn any funds from the company, but feel that the time has come for them to be rewarded.
Don and Jane turn to you, their tax advisor for assistance in determining how to reward themselves financially from their successful business.

What are the tax issues facing Don and Jane in connection with withdrawing money from the (LLC) corporation? Discuss different options and provide support with computations showing the tax consequences of the various choices.

Should be on MS Word document with citations and APA style.

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Solution Preview

The ABC Company was incorporated as the Limited Liability Company (LLC) two years ago. The budgeted profit for the year third is $300,000from the business operation. The withdrawal of the money from the LLC may pose various tax issues for Don and Jane. Different types of options are available for the business owners through which they may withdrawal money from ABC Company.

Different Options & Tax Issues

Most commonly three methods are used to withdrawal money from the LLC namely salary, guaranteed payment and distribution. In the general way the earnings of LLC are subjected to self-employment tax purposes regardless the distribution of earnings. Each of the option has some significant tax issues, which may be faced by Don and Jane in connection with withdrawing money from the (LLC) corporation.

Salary - The withdrawal of the money from the ABC Company in the form of salary is the most common option available to Don and Jane. The salary is treated as the compensation for the ...

Solution Summary

Tax issues for Don and Jane in withdrawing money is examined.

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