W2-G to LLC Withholding and Triggering Additional Medicare Tax

Forum|Forum|2 years ago
October 20, 2023
1 reply
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I have a client who received a large W2-G from NY lotto and ran it through an LLC. I am attempting to work through the forms and when i am carrying this over to the personal return it is triggering the additional Medicare Tax. Is this accurate being that its lotto winnings (Which don't trigger this on a personal W2-G)? Or is he stuck being that he ran it through an LLC? Should we simply report it personally? Main issue is he split the winnings with other individuals and was advised the LLC route to provide everyone a K-1.

There was also sizeable withholding run through the LLC which i am not sure if to just move to his personal return or if there is a way to have it placed on the K-1 to pass through.

I haven't dealt with a situation with gambling winnings going through an LLC with large withholdings and the way I'm entering it as other income is making the additional Medicare tax appear and the withholdings are showing as a LLC refund rather then a pass through.

If we need to abandon the LLC and eat the tax for the other payments to individuals it is what it is, just want to make sure I am not missing something.

Any help is appreciated.

Thank you.

ProSeries Professional

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Best answer by Accountant-Man

As you probably already know, even at $500 an hour, it doesn't take 10 hours to prepare an LLC organizational documents. He was ripped off.

It takes 30-60 minute, max.

The winnings should not be taxed as earnings, but you have to prepare a Form 8275 to show why you are taking a different position.

Hire another professional, a CPA.

Accountant-Man

Level 13

Which lawyer told him to run it through an LLC, and how much was that legal fee?

What was his legal theory, other than "asset protection?"

ps What was the LLC's business purpose, since that is what LLCs do, business?

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lmlassociatesinc1Author

Level 3

Lawyer told him to use an LLC so he wouldn't need to release his name. He doesn't speak English so has a translator (provided by attorney) with as you mentioned a hefty legal fee, somewhere around 5k to open the LLC. I didnt get involved until his granddaughter who was already a client of mine called me after some questionable financial decisions. He spent 80% of the money already (11 million) in 5 months. There is a 1.3 million remaining tax due and the idea was to split those winnings with family, but seems to be a situation that wont work anyway.

I was hoping to avoid the standard taxes with the additional Medicare tax but being that lotto winnings are other income, seems unavoidable. Was hoping i missed something obvious.

Accountant-ManAnswer