Are LLC members subject to self-employment taxes?
An LLC member who is active in the business — like a partner in a partnership — has to pay self-employment taxes on his or her share of LLC profits. You can deduct half of what you pay for self-employment taxes as a business expense. Members in manager-managed LLCs may not have to pay self-employment taxes if they are not active in the business. The self-employment tax situation for LLC members has been a subject of controversy and temporary regulations, and the dust has not yet settled around many of the issues. If you plan to be an inactive member of an LLC and don’t plan on paying self-employment taxes, get an opinion from a local tax expert — preferably one who is willing to argue his or her opinion to IRS officials, if it comes to that.
