For owners
An LLC is not a tax status.
Contha knows the difference.
S-corps, partnerships, multi-member LLCs and rentals each land on a different return, with different rules about what carries self-employment tax and what counts as your share. Most finance apps have one checkbox for all of it. This has the model.
Your share of each entity
What the K-1 will say, before it exists
Per entity: ordinary income to you, W-2 wages, what is subject to SE tax and why, basis after distributions. Recorded figures only. Nothing here is verified against payroll or a bank, and the panel says so.
Ordinary income to you
$3,107
W-2 wages
$24,000
Subject to SE tax
$0
Over basis
$22,893
The model
Six rules, all of them from the code
The wrapper you have, against the treatment the IRS applies. Contha records both, and refuses an election the wrapper cannot make.
- Wrapper and treatment, two axes
- An LLC is a wrapper. The IRS taxes it as a sole prop, a partnership, an S-corp or a C-corp depending on the election. Contha records both, validates the election against what the wrapper can make, and runs every calculation on the treatment.
- Nothing on the wrong return
- An S-corp's revenue is 1120-S revenue. It never lands on a Schedule C and it is never charged self-employment tax. The rule is enforced in the code and covered by a test that fails the build if S-corp revenue ever reaches a Schedule C again.
- Your share, before the K-1 exists
- Ownership share, guaranteed payments, whether a partner materially participates: the K-1 position per entity, computed from recorded figures and stated in the words a K-1 uses.
- Basis, the simple ledger
- Contributions plus income less distributions. When distributions run over basis it says so, because that part is a capital gain and it is the kind of thing found in April.
- Reasonable compensation, described
- Wages against distributions for an S-corp, with the factors the IRS weighs listed beside them. Described, never scored: whether a salary is reasonable depends on facts this product cannot know, and it says so.
- Wages recorded, payroll left alone
- The W-2 figure is typed in, not computed. Payroll is Gusto's job or QuickBooks' job; what matters here is that the wages reach the estimate, fill the brackets first, and use up the Social Security base before the business does.
In its own words
What the page says to an owner
- Structure decides which return the numbers land on.
- $22,893.00 of distributions exceed basis. That part is a capital gain, not a return of your money.
- Distributions exceed wages. There is no published ratio, but this is the shape the IRS reviews.
- Subject to SE tax: none, by structure.
Every sentence above is rendered by the product from its own figures. None of them is advice. The K-1 panel ends by recommending a conversation with your accountant, and the accountant can open the same figures through a read-only link.