How to reduce self employment tax for flipping project with partners?

[Richard Z.]

It’s been a while didn’t come and post here.:-) hope everyone has a wonderful 2013!

I did a project in 2012 with other two partners (one active on passive no salary for both). By the end of the project I took a small portion as my compensation about $28k (which is specified in the LLC agreement as a percentage of profit before capital distribution). Rest of the profit are distributed per capital contributions, I own capital interest, so I also took about $130k for the profit per capital contribution.

I'm also a realtor so I earned commission when I buy/sell the properties for the LLC. I made about $30k in commission from this project .

Now the issue is about the self employment tax, as I'm manager(active partner) for the LLC, so looks like all of 28k +30k+ 130k are subject to self employment tax. Do I have to pay that amount? Does it make more sense to pay SE only on the 28k+30k? If so will the LLC elect as S-Corp for tax purpose work? If not what's the reasonable rate to pay?

And for planning purpose, how would you set up the partnership/entities to reduce the SE tax? especially with self capital contribution and with passive partners, I prefer all the profit from capital contribution will not need pay SE tax. While a reasonable compensation/percentage of profit is set aside which will subject to SE and specified in the agreement. Will moving all capital contribution to under my wife's name and as passive partner work? Will use a LLC to be the manager and I myself as passive partner hold capital interest work? What's the typical way to set up this ?