A business associate of mine owns 100% of an LLC (this LLC has insignificant income and valuation). He is offering me 10% ownership of this company in addition to paying me a fixed monthly stipend for my work as a software engineer (this constitutes about 10-20 hours of work a month). The contract he wants me to sign states I'll receive my monthly stipend (if that is the right word) as a 1099 contractor. When the company starts generating enough revenue he'll stop the 1099 status and we'll each take proportional drawings from the company account instead (so the company will have a net profit of $0.00 each year).
It strikes me as being a bit strange: being a 1099 contractor for a company I part own.
I also know that 1099 income means I'll have to pay not only my marginal tax rate of 28%, but also FICA taxes, giving me an effective tax rate of almost 45%, that's a large chunk of "my" income claimed by the IRS (frustrating, as I already have a W-2 job where my employer also pays FICA taxes; I note that I am currently below the Social Security tax limit, even with the extra 1099 income). But under what tax conditions are the drawings made then?