Being a 1099 for a company I part-own?
A business associate of mine owns 100% of an LLC (this LLC has insignificant income and valuation). He is offering me 10% ownership of this company in addition to paying me a fixed monthly stipend for my work as a software engineer (this constitutes about 10-20 hours of work a month). The contract he wants me to sign states I'll receive my monthly stipend (if that is the right word) as a 1099 contractor. When the company starts generating enough revenue he'll stop the 1099 status and we'll each take proportional drawings from the company account instead (so the company will have a net profit of [CO].00 each year).
It strikes me as being a bit strange: being a 1099 contractor for a company I part own.
I also know that 1099 income means I'll have to pay not only my marginal tax rate of 28%, but also FICA taxes, giving me an effective tax rate of almost 45%, that's a large chunk of "my" income claimed by the IRS (frustrating, as I already have a W-2 job where my employer also pays FICA taxes; I note that I am currently below the Social Security tax limit, even with the extra 1099 income). But under what tax conditions are the drawings made then?
(1)1 Comments
Sorted by latest first Latest Oldest Best
The contract he wants me to sign states I'll receive my monthly
stipend (if that is the right word) as a 1099 contractor.
The right word is guaranteed payment, which is what "salary" is called when a partner is working for a partnership she's a partner in. Which is exactly the case in your situation.
1099 is not the right form to report this, the partnership (LLC in your case) should be using the Schedule K-1 for that.
I suggest you talk to a lawyer and a tax adviser (EA/CPA) who are licensed in your State, before you sign anything.
Terms of Use Privacy policy Contact About Cancellation policy © freshhoot.com2025 All Rights reserved.