OK.....I know we had some discussion about this earlier and I had a chance to talk to my CPA this week, reading a book on it, etc. Here is what I've come up with so far: Your LLC grosses 100,000 dollar this season. You had 40,000 dollars in deductions this year, so that leaves you with 60,000 in profit. You paid yourself and your partner 20,000 dollars each. These "draws" are subject to 15.3% Self employment tax, federal income tax, state, and local tax. Half of the SE tax can be used as a deduction as you are both the employer and the employee. Federal tax is 15% for anything up to about 25,000. Any income after that comes in at 28%. After paying yourselves throughout the year, you will have 20,000 left in the pot (60,000 profits minus 40,000). This 20,000 if left in the pot is subject to SE Tax only. These taxes will be devided among the partners and paid on your personal income tax returns. If the money is given as a bonus it's subect to all taxes. However......AND I'M STILL CHECKING ON THIS.......some portion of the profit can be given as a dividend (usually quarterly) which would only be subject to federal income tax only. There are certain rules to this.....i.e...you can't pay yourself 2000 dollars, then give youreslf a 40,000 dollar dividend to avoid SE tax. IF ANYONE DISAGREES OR HAS OTHER TAX SAVING IDEAS PLEASE POST THEM HERE!!!!! Here is some more info: In most states an LLC can be taxed as either a corporation or a partnership. I assume that you will be taxed as a partnership. You (or your accountant) will need to file a Form 1065 with the IRS. This is the Partnership Return of Income. You do not pay taxes on this return. As partners you will not be paid on a W-2, your salary will be listed on a line "Guaranteed Payments to Partners." Ask your accountant about making estimated tax payments. Back to the 1065. This is sort of like the 1040 Schedule C. On the 1065 you will list your income and deductions. There are other forms that you may need to attach, such as depreciation. It also has sections to reconcile the last year-end balance sheet with the current year-end balance sheet and profit & loss. You also reconcile the year-end capital balances for the partnership. After the 1065 is completed the partnership takes the results, divides the profit (and some other things) up between the partners and reports it on a K-1. The information on the K-1 is transferred to the partners' individual 1040s.