If I own the LLC and pay myself by the hours worked, Can that qualify as a draw?

[mettro2]

So I'm planning to start an LLC. I will have 1 partner and we are planning to pay ourselves weekly by how many hours we work. Since we are both the only owners of the business, can we classify it as a draw or are we required to classify ourselves as employees and thus pay more taxes?

[Evan]

It sounds like the LLC will be taxed as a partnership, as you haven't mentioned anything else... What you're stating sounds more like a guaranteed payment which is similar to a draw. The difference is the guaranteed payment is taken out prior to "net income" being calculated and the profits/losses allocated in accordance with your LLC operating agreement.

So say your net income was $100K (before guaranteed payments), but you worked more hours, and took guaranteed payments of $40K, and he worked less and took guaranteed payments of $20K. Each of you will report all of that as income on your respective tax returns. The remaining $40K ($100K - $40K - $20K) would be allocated based on the operating agreement, so if he put up more capital, perhaps he is getting more allocated to him.