LLC Member and Limited Partners

Limited partners in a partnership, have their liability classified to included the amount of their investment. A general partner in a partnership on the other hand, hold unlimited liability to the debts and obligations of the partnership. General partners pay SE tax on their distributive share of income from the partnership, while limited partners do not.

The IRS regulations currently facilitate that logically, an LLC member who is personally involved with an LLC, likely should be subject the SE tax. The best way to handle this, is with guaranteed payments from the LLC to the members - subject the SE tax, with the distributive share not subject to the SE tax. This is similar to an S-Corporation, where reasonable wages are paid, and the distributive share is non-taxable.