Paying yourself as an employee

I don't have any experience in any of that but it seems like the cost of workers comp and payroll fees would be less than taxes on all your profits

Only real benefit is you pay your federal taxes and self-employment taxes during the year and don't have to worry about estimated payments and/or a big tax bill when you file your return.

In order to get any benefit from paying yourself as an employee your LLC has to elect to be taxed as a S-corporation, and you have to pay the shareholder-employees reasonable compensation. If the shareholder-employees are paid reasonable compensation, then the net income from the S-corporation will not be treated as self-employment income subject to self-employment tax. It is therefore possible to limit the amount of tax paid for Social Security to just the amount of compensation.

I'm in Baton Rouge.

Mmake your cpa change your llc to an S Corp.

You basically save 15% of taxes (give or take)

Think of it as paying yourself like a w2 employee instead of all the self-employment taxes that kick in if your a c Corp

So if you make 200000 profit, wouldn't you rather have taken a salary of $15k/month and save 15%, or pay the extra $30k to Uncle Sam?

(not exact figures, but u get the point)

Poddle , is that close to a simple explanation?

ahhh, ok that is interesting.
What happens to the money that isn't paid out at the end of the year if I file as an s-corp?

For example, let say I make more than I predicted ( $100K in profits but only paid myself 6K a month = 72K). The 28K that is left over, can I still use that as if it were my own money or it has to stay in a business account untouched until it comes out as an expense?

Poodle do you have any recommendations for a CPA in New Orleans area?

Follow up question to Poodle if he doesn't mind; you have to do this election by a certain point, correct? So am I too late for 2014 to file as an S-Corp even though I'm an LLC? If my scenario is correct from previous post, I want to make sure I do this asap or at least get ready to do it for my 2015 taxes.

TIA

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It just seems there is some catch? If I make $200k as an example and I pay myself a "reasonable salary" of $100k, I save 15% on that $100k?

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Keep in mind that the full s/e tax is only on, for 2014, $117,000 of s/e income. So in the example of 100K salary, you would pay the s/e tax on that, and the s/e tax on the next 17K, and then the reduced rate (medicare only) on the rest.

The nut is the reasonable salary part. I try to tell my clients this as way of explanation if they want to go the S corp route:

Reasonable compensation is the amount you would get paid if you were an employee somewhere else, i.e. what you would get paid for the work you do. However, as a self-employed, you are also an investor in your business, so the part of your income that represents return on your investment should not be taxed as self-employment tax.

If a individual is the only employee of a S corp law firm... it's hard to argue that reasonable salary is much less than the net cash flow of the business.

Just watch out for the "personal services" issue

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If that same LLC had elected S-corporation status and the member took $50,000 in salary, then the taxpayer pays employment taxes on $50,000 and gets $100,000 free of self-employment taxes.

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So who pays the taxes on that $100k in your scenario? If I'm an LLC and file as an S-Corp, no s/e tax gets collected at all on that $100k? I can simply pay the 15% on the $50k and save the $10k+?

When do I have to make that status change to be able to do this? I'm too late to do it now for 2014 taxes, correct?