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How members in a LLC are compensated

Colorado entrepreneurs who start their own companies generally do so in the hopes of securing their financial futures. Those who create a limited liability company have two options as it relates to paying themselves. If the company is taxed as a sole proprietorship, the owner will make a draw from the company's bank account and deposit it into his or her personal account.

It is important to note that FICA and income taxes are not withheld in these payments. Therefore, an owner will need to make estimated tax payments throughout the year. However, if the company is taxed as a corporation, members will be paid as if they are employees of the organization. This means that the company will withhold FICA and income taxes on an owner's behalf. In many cases, an LLC will have two or members.

In such a scenario, the company will be taxed as a partnership unless it elects to be taxed as a corporation. Partners decide for themselves how to split ownership in the company, and it is not necessary for profits to be split on a 50/50 basis. It is important to note that LLCs that are structured as a sole proprietorship or a partnership do not pay taxes themselves. Those who have questions about their company's tax obligations may want to talk with a financial adviser and an attorney.

Those who are looking to start their own companies may want to speak with a business law attorney who can provide insight into how an entrepreneur can structure the business and the potential benefits of each form of legal entity. Once the decision has been made, the attorney can prepare the applicable paperwork.

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