On Mon, May 11, 2009 at 12:16 PM, Vitaliy <spam@maksimov.org> wrote:
> alan smith wrote:
>> For those outside the US..can probably ignore.  So I have a long term
>> "partner" who brings me in on projects when he needs a board or  
>> circuit
>> designed for his clients projects.  Its worked well over the years  
>> and now
>> he has a product of his own to design and sell.  Initially he  
>> approached
>> me and asked for a bid on doing the design, and I provided that to  
>> him.
>> Then he asked..do you want to just be paid, or have a cut of the  
>> profits
>> (always a risk)and honestly my time and materials on the board are  
>> about
>> $10, pretty small risk.  Now comes the question on tax liability.  He
>> wants to form a LLC, with myself and two others.  The LLC will  
>> purchase
>> the pieces from us...my board, his mechanical part all at 'cost'  
>> and then
>> we get paid back from the LLC, as profit sharing.  From a tax  
>> liability,
>> my costs for parts (no labor) are a tax deduction on my schedule C  
>> for the
>> consulting business, and then the profit is typically my design and  
>> build
>> time, very straight
>> forward but its all under my company name.  Now that the LLC is  
>> thrown
>> in...I wonder how the IRS looks at me selling something to the othe  
>> LLC,
>> and then taking back profits.  Either the LLC pays me direct for the
>> costs, and then takes in profit sharing above that but it seems just
>> slighty odd and not sure completly legal to do.
>>
>> Just wondering if anyone else has been involved in something like  
>> this. Of
>> course the obvious answer is...talk to a tax attorny but figured I  
>> would
>> try to get some idea from the list...as there are several smart  
>> business
>> folks on here as well.
>

I see no reason for you to form an LLC or a partnership.  You , he and  
the 3rd guy
can have an agreement which disperses profits ( net or gross ) based  
on a formula.
This exposes you to less liability.  I recommend getting a cut of the  
gross revenues.
This avoids many questions about what is a legitimate expense !  You  
simply become
  an expense to the product.
Gus
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