Recording Owners Time without pay
The owner of our small construction company works 60-80 hours a week on jobs but does not take "pay". We are an LLC and he takes draws as needed. How do I record the value of his time on the jobs without affecting the bank accounts? Right now we look highly profitable since all the work seems to be getting done for free! Would his time be considered an owner contribution? What journal entries would I make for this?
G.L. Question; distributions to LLC Member
Members of LLCs are not employees of LLCs.*
Your question ("does not take pay") references the practice of an LLC single
member distribution. REQUEST CLARIFICATION.
"LLC owners' efforts are rewarded via distributions from owners equity."?
In the general ledger parlance, Helse answers, "Yes". Exceptions apply.
Zahid and Pat are more proficient in G.L./QB practices than Helse, await response.
*exception to rule, guaranteed payments, see: Zahid v Helse
Fight Night 1; S-Corp v LLC. Special rules apply to LLC Members salaries.
Last edited by Helse; 07-16-2009 at 10:07 PM.
Drafting LLC Operating Agreements, Cunningham
IRC sec. 707(c) distinguishes partnership income from salaries or wages.
Equating "time on job" with compensation risks converting partnership distribution
to "guaranteed payment" with SET liability. Consider a Sole Proprietor, how does an S.P.
measure effort? In hours or economic units? Distribute profits in accordance with
percentage of LLC share.
Example:
Partner 1 receives salary ($1,000 per month) and 10% of partnership income.
The salary is subject to SET. 10% profits distribution (if shares qualify as
a limited partner interests) are not included in SET assessment.
Last edited by Helse; 07-17-2009 at 01:43 PM.
In light of the new federal 8% employment tax for health care, aggregating documents relating
to partner versus employee and general partner versus limited partner distinction
speaks to our cause.
Last edited by Helse; 07-17-2009 at 01:39 PM.
CCH Guide to Social Security Tax
Helse is begging a member (pardon pun) to ask, "What is a guaranteed payment? If a partner
draws a monthly distribution in excess of a profit distribution will the SET be applicable to all
or a portion of his payment?"
Obama Stakes: 15% FICA + 8% Health Care Insurance Tax = 23% of "employee" tax.
If IRC 1402(a)(13) is revised, does Helse have an alternative strategy(ies)?
Last edited by Helse; 07-17-2009 at 02:33 PM.
One thing you can do to end up with a proper job cost history is to charge the hours/partner out at the appropriate rate and then set up a contra account on another job. Assign one job number to receive all the contra entries (use a description to indicate the job# actually worked on).
So the net entry is zero and the books are still accurate.
It is not an owner contribution.
Well,start recording time unless you might be surprise at the end.Zero net after working that much in a week.Hopefully you can make the change and resolve this issue as soon as possible.
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