Does General Partner/Limited Partner designation matter in an LLC partnership structure?

You're mostly on the right track. In a standard LLC taxed as a partnership, the owners are indeed called "members" rather than partners. The distinction between General Partner and Limited Partner is primarily relevant for Limited Partnerships (LPs) or Limited Liability Partnerships (LLPs). That said, for tax purposes, the IRS Form 1065 (Partnership Return) and Schedule K-1 do distinguish between general and limited partners even for LLCs. This classification impacts how your self-employment taxes are calculated. If you're actively participating in the management and operations of the business, you'd typically be classified as having "general partner" equivalent status for tax purposes. Since both you and your wife are active in the business and have management rights, you would both likely be considered as having "general partner" status on your tax forms, even though your legal designation in the LLC operating agreement is "member.

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I work with partnerships and LLCs regularly, and there's a key distinction that might help here: for an LLC taxed as a partnership, the GP/LP designation on tax forms is about your ROLE in the business, not your legal title. If you are active in management = General Partner equivalent (pays self-employment tax) If you're a passive investor = Limited Partner equivalent (may be exempt from some self-employment tax) The IRS cares about function over form. You can be called a "member" in your LLC operating agreement, but for tax purposes, your actual involvement determines whether you're treated as a GP or LP.

Has anyone seen the 2024 updates to how LLC members are classified? There were some proposed regulations that would have changed the test for who qualifies as a limited partner for self-employment tax purposes, but I'm not sure if they were finalized.

Just want to add some clarity from my experience as a tax preparer - the confusion here is totally understandable because you're dealing with two different classification systems that use similar terminology but serve different purposes. Your LLC operating agreement designates you as "members" under state law. But when that LLC elects partnership taxation (which happens automatically with 2+ members), the IRS needs to categorize each member's role for self-employment tax purposes using the GP/LP framework from partnership law. The key test is simple: if you materially participate in the business (which includes management decisions, day-to-day operations, or working more than 500 hours annually), you're classified as a general partner equivalent for tax purposes. This means you'll pay self-employment tax on your share of ordinary business income. Since both you and your wife are active in managing the business, you should both be classified as general partners on your Form 1065 and Schedule K-1s. This won't affect your LLC liability protection at all - that's governed by state law, not federal tax classification. Your CPA needs this info because it determines how your self-employment taxes are calculated on Schedule SE of your personal returns.