Mark Kohler tells Dan his accountant is wrong: guaranteed payments in an LLC block the QBI deduction. Switch to an S corp, pay yourself a reasonable W-2 salary, and take the rest as profit that qualifies for the 20% deduction.
Foreign. From Madison, Wisconsin says our taxman says we can't use QBI since we do a guaranteed draw. Is he right and how can we change that? If you're a small business owner in Wisconsin, he get, he says we do a guaranteed payment. Ryan, I'm already Ryan, right? Dan in Wisconsin. Dan, I'm already concerned. Guaranteed payments only take place in LLCs and if he's doing a guaranteed payment and then you've got pass through income and he's doing a 1065 your accountant, this is already wrong in my opinion because if you're an active manager of this LLC of this business, everything is subject to se tax. You cannot call the pass through passive. And Dan, you probably know what I'm talking about, right? He goes oh we're going to do a guaranteed payment and you pay your self employment tax and then on everything else it's all passive wrong. Under audit you lose 9 out of 10, 99 out of 100 CPAs will agree with that. It is clear factual tax law. So if he really does have you taking a guaranteed payment and in an LLC 1065 so that you can limit your self employment tax, you got the wrong accountant and any accountant out there, you want to go head to head on it, let's start emailing. And this is pretty clear. So what we normally do Dan is you're going to be doing an S corp and you're going to take a W2 and a K1. Now you can take pay your self employment tax or FICA over here on the W2 and not on the K1. That is legit president. Candidate Biden did the same thing. Candidate Biden when he disclosed his tax returns has an S corp. He took a W2 and a K1, he got rid. He did not pay any Obamacare on this. He did not pay any FICA on this and he did not pay any corporate tax on this. He got it all kit and caboodle. So Dan, but when you say guaranteed payment that freaks me out. You should not be doing a guaranteed payment. You should be doing a W2. So I get a second opinion. You can call my office anybody that wants to review with one of our tax lawyers. We're affordable, we're Main Street America tax lawyers. We're not charging New York LA prices. So here's our number. I'm just going to throw it out there. 586-9366 you can talk to one of our tax lawyers or CPAs and we'll help figure that out. But what Dan's asking is about this QBI deduction which is a 20% deduction on business income. Well, the 20% deduction applies on the K1, Dan. But what your accountant is saying is, well, you don't get the QBI because you take a guaranteed payment. And that's because QBI does not apply to passive income, which you don't have anyway. Your accountant's doing your tax return wrong. That's the bottom line. So is he right? You don't get the qba. Qbi? Yeah, because it's passive. Do you qualify for passive? No. Are you in the right type? Wrong. Are you in the wrong tax return structure? Correct. You are in the wrong situation, Dan. Get a second opinion. Get a third opinion. Call me office, we'll talk you through it. Now you may have said guaranteed payment and meant something else and I went down the wrong path. But for anybody out there doing an LLC making money, think about the escort. Seriously. All right.
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