Dear Zac,
Let's see if I can answer as many of your questions as possible.
1) You say: I have never voted nor been invited to an annual meeting,
but at the start I was fully active. Having a loss was fine
Did you deduct those losses? If you had invested money in the
beginning, and you were an active 'member'* of the LLC, you were
probably able to take the tax benefit from the deductions.
If you were not able to use them, due to passive loss limits
on your personal tax returns, you have a passive loss carryover
that would absorb the $3378 of income allocated to you for 2004.
If you were able to deduct the losses in the past, you do have to
pay tax on the income now.
[* Note: in an LLC, a partner is called a 'member'.]
2) You say: but now I have to pay what I see as corporate taxes,
but my partners say there is no money
That is very common in partnerships and LLCs. This is a big danger
that occurs when you're a silent member. There is no law that requires
them to distribute money to cover your share of the profits or your
tax liability. Most well-run LLCs do distribute money to cover members'
taxes, though.
3) You say: I asked one partner what he is doing and he says he's
ignoring it unless "we strike it rich", which I took as that he
wasn't filing his K-1.
That's not so. He reports his profits and losses on his tax returns, too.
He may not have to pay tax on the income, if he had suspended losses in
the past. What he's ignoring for now, is the negative capital account in
the business. He's apparently expecting there to be profits at some point.
4) You ask: Can my partners take all of the money (through salaries or
whatever) without involving me?
You betcha! Read your LLC contract. It probably spells out that the
active or managing members are to receive a salary. It may define the
salary in absolute dollars, or as a percentage of sales or whatever.
But it should be defined.
As to not involving you, again, read your agreement. It will define
whether or not you have voting power. If you do, insist on being
informed before all meetings (send them a written demand to perform
on that score), and exercise your right to vote.
5) You ask: Do I need to hire a professional to help me to decide
what to do by looking at their books?
Not really. You sound like a pretty savvy kind of guy.
Why don't you just look at their books to see what their
income is, and their corresponding expenses.
Look at their annual payroll tax returns, especially the W-2's,
to see what each member is getting paid. In fact, if you look
at the W-2s for the last three years, you'll be able to see if
they took raises, or cuts in pay, to accommodate the declining profits.
6) You ask: Where can I find one in Chicago that would be on the
budget of an individual?
You have three choices of a tax professional who could look at
the books and tax returns of the LLC and explain to you what's
going on - you can hire a tax attorney, a CPA, or an EA (enrolled agent).
Generally, your least expensive option is the EA. You can find
an EA in your area by going to the National Association of Enrolled Agents'
website at www.naea.org and searhing for an EA in your zip code, whose
specialty is business.
Or you can go to the American Institute of Certified Public Accountants
website at www.aicpa.org and find someone local.
Or you can go to the National Bar Association website
http://www.nationalbar.org/welcome.shtml
You can also find tax professionals at the National Association of
Tax Professionals website, which includes all categories of tax pros.
http://www.natptax.com/
I do hope this gives you an idea of how all this works, and options
so you can decide how to procede.
Good luck.
Your TaxMama-ga |
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