Which of the following members of an LLC is most likely subject to self-employment tax on their share of LLC ordinary income?

Answer options:

A member who is a passive investor with no management rights.

A member who actively participates in the management of the LLC.

An S Corporation that is a member.

A limited partner in a limited partnership.

How to approach this question

General Partners/Active LLC Members = SE Tax on everything. Limited Partners/Passive Members = SE Tax only on Guaranteed Payments for services.

Full Answer

B.A member who actively participates in the management of the LLC.✓ Correct

A member who actively participates in the management of the LLC.

An LLC member who actively participates in management is treated analogously to a general partner and is subject to self-employment tax on their distributive share of ordinary income.

Common mistakes

Thinking all LLC members are exempt from SE tax.

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