A few years back, your friends who are horse fanatics inherited several acres of land that they turned into a retirement haven for race horses. Peaceful Pastures was recently incorporated as a limited liability company. The members are reevaluating this form of ownership. Unlike an S corporation, they now pay self-employment taxes on all company profits-not just on the salaries they pay themselves.

Question

Quizplus · Accepted Answer

Limited liability companies (LLCs) are treated as pass-through entities for tax purposes, meaning that profits and losses are passed through to the owners and reported on their individual tax returns. As such, all members of an LLC are subject to self-employment taxes on their share of the profits, regardless of whether they take a salary or not. This is different from an S corporation, where only salaries are subject to self-employment taxes.

A Few Years Back, Your Friends Who Are Horse Fanatics