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Level 2
December 23, 2021

How to unscrew disregarded entity owner paid by W-2

  • December 23, 2021
  • 4 replies
  • 20 views

Hi. Single member LLC in MD formed in 2021. I'm the owner and only worker (for now, since inception to date). IRS has it as a disregarded entity. I'm just catching up to that important distinction.

I've been paying myself as a W-2 employee since June when I started doing contract work. And now I realize that was a mistake. I tripped over the details as I was looking to see how to handle my SEP contribution and I see the 20% for self-employed vs. 25% for employee. And it seems I'm the former, W-2 notwithstanding.

Fixing this for the SEP is important but not urgent since I've got a few months. What's really urgent seems to be deciding how I want to fix the bigger LLC/partnership vs. disregarded entity thing.

My guess at this point is I have two choices:

1) Stay single member LLC, stop paying myself as an employee, start handling things as self-employed with flow-through to my personal tax filings. File to recover the employer payroll withholdings that I didn't need to make in 2021.

2) Take on my wife as a second member for the LLC and stop being a disregarded entity. Be a LLC/partnership. MD is not a community property state. Zero concerns about loss of control  or assets to her.

What do you think? What do I have to do by year end? How can I find the right pro to steer me through this and the other things I'm screwing up. I'm in MD just outside NW DC. 

Thanks for reading this far and any insights or well-meaning dope-slapping you can offer. 

    This topic has been closed for replies.

    4 replies

    BobKamman
    Level 15
    December 23, 2021


    You’ve come to an Intuit site supporting tax professionals, and you may be looking for support as an individual taxpayer. Please visit the TurboTax Help site for support.


    Level 15
    December 23, 2021

    You have a business and you screwed things up.  Go to a tax professional.

     

    George4Tacks
    Level 15
    December 23, 2021

    You can start your search for a professional at https://irs.treasury.gov/rpo/rpo.jsf Check the boxes for Certified Public Account Credential and for Enrolled Agent Credential.

     

    Answers are easy. Questions are hard!
    Level 2
    December 24, 2021

    Thanks Bob & George. I appreciate the constructive responses.

     

    Level 15
    December 24, 2021

    I apologize, I missed the part about you asking how to find a tax professional. 

    I just saw you lay out the situation and ask what do you need to do.  And the answer to THAT (and your entire situation) is to go to a tax professional.  But again, I missed the part about you asking how to find the tax professional.