Monday, March 29, 2010
Partenerships may not be simple.
Guess I'm on a roll here. Here's another question similar to the one in Assess the situation. Then make the right choice. This one from Mike, in Georgia.
June, Computer Consultant 9 years as indie. I have been an indie for a number of years, last year I started a new LLC with a good friend. He wants to have both of us treated as 1099 employees. Is this a smart move. Is it correct and legal. I have always treated my past business (also LLC) as an owner that receives a draw.
Well, for starters, all of you indies who know my writing and seminars are aware that there is no such thing as a "1099 employee."
Employees receive W2s; they have employers; they are not self-employeds.
Self-employeds receive 1099s.
What you probably don't know, because I pretty much keep my writing to sole proprietorships and do not give advice on partnerships, is this:
Partners in a partnership receive a K-1 stating their income or loss for the year. They do not receive a 1099 from the partnership.
Partnership tax returns are complex.
I have a bad feeling that Mike and good friend may also have done the $29.95 setup-an-LLC-online kind of thing. They need to have a tax pro look at their partnership agreement and also explain the tax setup for partnerships.