Sole proprietors and partners often suffer from W-2 envy.
And I know why. If they’re earning more than the Section 199A pay limits, they look to W-2 wages as a way to salvage the juicy 20-percent deduction allowed by Section 199A.
In fact, some sole proprietors and partners often have their Certified Professional Organizations (CPEO) pay them on a W-2.
This is wrong. Dead wrong. And here are the facts.
Three facts sole proprietors and partners need to know now.
Fact #1: Sole proprietors are not W-2 employees of the proprietorship. They are self-employed and operate under the rules for the self-employed. You’ll get the whole story when you read the full article.
Fact #2: Partners are not W-2 employees of the partnership. They are partners and treated as partners under the tax rules. Partners receive remuneration for services as guaranteed payments that are subject to self employment taxes. You’ll get the whole story when you read the full article.
Fact #3: The single-member LLC is a proprietorship unless the member elects treatment as an S or a C corporation. Similarly, a multi-member LLC is a partnership unless it too elects treatment as an S or a C corporation. You’ll get the whole story when you read the full article.
If you want to make sure that you don’t initiate close IRS scrutiny, here’s some good advice. Read the full article before your friendly IRS agent calls you in for a meeting.