Personal Finance & Money Asked by brmcpt on December 10, 2020
I know guaranteed payments from an LLC are not eligible for QBI. However, I’ve found two sources (here and here) that say that a priority profit allocation from an LLC is eligible for QBI. I can’t find anything from the IRS verifying that though.
Has the IRS said if priority profit allocations are eligible for QBI? Any other good resources for reading about this issue?
Motivation for asking: I get the first $X in profit from an LLC, which I’ve been calling a guaranteed payment on my tax return. But it actually is NOT guaranteed since I don’t get that payment if the LLC profit is <$X. So if this payment is technically a priority profit allocation, and priority profit allocations are eligible for QBI, then a lot of my income would be QBI.
A guaranteed payment is "a specific term in the Internal Revenue Code, which is defined as payments to a partner (in a partnership) or a member (in a limited liability company) in his or her partner or member capacity for services rendered to the partnership or limited liability without regard to the income of the entity."
A priority profit allocation is "a specific allocation of profit that is not based on ownership and is accounted for before any allocation based on ownership."
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