Tax on income for company that I have vested stock in? Wouldn't company pay this? Please see details.?

Question

I vested 100% of my stock in a small company - 1% ownership total - and have left. They've offered me a buyout. As part trying to convince me to take it, they've stated that I'm liable for 1% of the taxes on company income. The company took on investors last month and will not distribute dividends until they've paid the investor back, but claim I would owe taxes on income anyway. Quoting:

"Even though no dividends are allocated, all vested Stock in terms of taxes for LLC’s classified as partnerships for federal income tax purposes file Form 1065 at year's end. Income from the business is reporting to the partners (share-holders) on Form K-1. This “flows” to your personal income tax return Form 1040. If the business has net income of $1M for the year and you own 1% of business, your K-1 will have $10,000 taxable income. You should make estimated tax payments on Form 1040-ES. This income is also subject to self-employment tax of 12.4% up to $97,500 and 2.9% with no cap."

Truth?

Answer 1

Truth? Yep, or another possibility for this kind of situation as a 1 percenter they can run up repair bills that you have to pony up or fold your cards, much like Texas Hold 'Em. What's happening here is the "smell" of the money changes if you take a capital gains lick (sell the stock), or indeed stick with your rights as a dividend recipient. I can't offer financial advice, but it looks like you should seek some advice to see what the least expensive "smell" is going to be on that money. Me? I lost all to a pipeline company with leaky pipes.

Answer 2

The statements in your question and answers are good, but if you have income from other employment, the self-employment tax may or may not be owed. If you have wages from other sources of $97,500 or more, that 12.4% tax disappears.

Answer 3

Nope, you're a partner so you are credited with the income whether you receive it in cash or not. Partnerships don't pay taxes, but the partners sure do!

Know what you're doing before you open your checkbook.