Article Date:
July 2022

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When Partners and LLC Members Don’t Pay Self-Employment Taxes

Millions of American businesses legally organize themselves as limited liability companies (LLCs), partnerships, or similar entities. Do their owners have to pay self-employment taxes?


Incredibly, the answer isn’t always clear.


General Partnerships


A general partnership becomes automatic if two or more people own a business together and do not form another entity such as an LLC or corporation.1


A written agreement is not required to form a general partnership, although it is a good idea.


General partners share in management of the business and can enter into contracts on behalf of the partnership.


General partners also are personally liable for partnership debts. For this reason, LLCs and limited partnerships have become the entity choice over traditional general partnerships.


The check-the-box regulations treat any non-corporate business entity with two or more owners as a partnership for tax purposes (unless it elects otherwise).2 Thus, partnerships include investment syndicates and pools, joint ventures, and other unincorporated organizations that carry on a business.3


Suppose you are a general partner in a general partnership, or other entity taxed as a general partnership. In that case, you must pay self-employment taxes on your ... Log in to view full article.

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