Recent Posts:

---

Behind on bookkeeping? Here’s how to get back on track

---

Midyear is a good time to update your business’s strategic plan

---

Don’t leave these self-employed tax deductions on the table

---

What counts as a small business for tax purposes? It may matter more than you think

---

Rising costs? Here’s what small business owners can do now

---

Tax identity theft: Yes, your business can be a target too

---

Strategic partnerships: Grow now, keep your options open later

---

Starting a business? 5 things you need to know

---

---

View AllSubscribe

5 Key tax considerations for your Partnership or LLC agreement

Running a partnership or LLC comes with its own set of tax rules, and making sure your business complies with federal tax law is essential. Here are five important areas to cover when drafting your partnership or LLC operating agreements:

1. Guaranteed Payments to Partners
Guaranteed payments are made to partners for services or capital, regardless of the partnership’s income. They should be clearly outlined in your agreement since they are treated as ordinary income and have specific tax implications. Be sure to define these payments to avoid surprises at tax time.

2. Accounting for Tax Basis from Partnership Liabilities
Partners can benefit from additional tax deductions by including their share of the partnership’s liabilities in their tax basis. Different rules apply for recourse and nonrecourse liabilities, so it’s important to address this in your agreement to maximize potential tax benefits.

3. Clarifying Payments to Retired Partners
How payments to retired partners are classified can impact how they’re taxed. Whether they’re guaranteed payments or ordinary distributions, making this clear in the agreement ensures both the partnership and retired partners are on the same page about tax treatment.

4. Preparing for the Unexpected
Consider adding provisions for situations like partner exits, divorce, or death. This can include buy-sell agreements, noncompete clauses, and clear steps on how to handle changes in ownership.

5. Minimizing Potential Liabilities
Addressing tax issues upfront in your partnership agreement can save you from future headaches. From liability classification to payment terms, careful planning can help avoid costly mistakes.

Tax law can be complex, but with the right provisions in place, you can keep your partnership or LLC in compliance. Need help navigating these rules? Contact us to help cover all your bases!