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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: SeaViewer who wrote (24562)	1/13/2005 2:42:26 PM
From: Jon Tara	Read Replies (1) of 110194

That is correct, Ordinary Income is neither employment nor self-employment income, and is not subject to SS tax. Distributions from an LLC are Ordinary Income. There is an "at risk" test. Salaries paid to you by an LLC are regular employment income, and the LLC and you each pay your share of SS tax. Guaranteed payments (i.e. the LLC agrees to pay you a a miminum, whether or not there is that much to distribute) are considered self-employment income, and subject to SS tax, also. You must be "at risk" for it to be Ordinary Income. So, you can see that if you set up a single-member LLC, you can arrange things pretty much as you'd like. If you want to contribute to a DB plan, you need employment or self-employment income (depending on who has the DB plan - the LLC or you), but as you can typically contribute near or more than 100% (unless you are young) you basically set your salary or guaranteed payment at what you want to put into the DB plan. You will pay SS tax on this, but the tax benefit of the DB plan far outweighs this. The balance can be paid-out as a distribution, and isn't subject to SS tax.

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