sub-chapter S corp?

It's the best

You aren't subject to double taxation instances like with C Corp

I think I could have worded that differently.

If you have a single member LLC or a multiple member/manager LLC, you are taxed as a sole proprietorship or as a partnership. Both of these are taxed at year end when you file a 1040SE, self-employment tax.

If you file as an s-corp, you do not pay self employment tax because SS and Med. are taken out of your salary(reflected on your W-2).

The benefit of the distribution is they are only subject to your personal income tax rate.

Side note: A con would be having to file quarterly filings for estimated taxes, but with quickbooks or some other software, this is not that big of a burden.

Also, if you have multiple members, the distributions need to be proportional to the ownership interest. There are a few nit picky rules you need to abide by; which is why you should talk to a tax professional.

Yeah, the tax professional is my wife and believe me she is nit picky.

I usually take out less than 20% in disbursements in relation to my income.

I am not sure when you must designate as an S-Corp with the IRS. Maybe Poodle or someone else can chime in. I'm sure any CPA's office would know off hand.

Remember, you can not switch back and forth from one to the other. I believe after several years, you can go back to filing as an LLC, but the IRS does not allow changing your designation often.

quote:

---

I usually take out less than 20% in disbursements in relation to my income.

---

Smart. I know a few people who have tried to get as close to the line as possible. I view that as trying to get audited. Less attention from the IRS, the better.

I don't feel comfortable giving that advice out. I am not a tax professional. I just know some of the benefits of filing as different designations.

Found this on SBA.gov:

quote:

---

Disadvantages of an S Corporation

Stricter Operational Processes. As a separate structure, S corps require scheduled director and shareholder meetings, minutes from those meetings, adoption and updates to by-laws, stock transfers and records maintenance.

Shareholder Compensation Requirements. A shareholder must receive reasonable compensation. The IRS takes notice of shareholder red flags like low salary/high distribution combinations, and may reclassify your distributions as wages. You could pay a higher employment tax because of an audit with these results.

---

I would talk with a professional who can look at the overall picture of your business and personal tax returns to properly plan a tax strategy that fits your circumstances.

IRS

Enter your numbers in this tax calculator for each scenario.

If your tax income from the entity is 140K, right now, you are paying income tax, as well as self-employment tax (full amount to about 117K in 2014, rest is medicare tax only).

If you took 90K in salary, that amount would be subject to payroll tax (social security and medicare, paid one-half by company and one-half by you via withholding) and the other 50K would not be subject to payroll tax.

You would save a few thousand per year.

As far as timing, if you submitted the election by March 15th, you can be an S Corp for 2014. There are provisions for a "late" election, but at that point you probably want to get a professional to help out.

The big negative is that you have to actually pay yourself a salary, which means running payroll, dealing with payroll tax returns, etc. Of course, you could hire a payroll tax service to do all of this for you, but there is a cost to that.

Without knowing your entire situation, I would say an S Corp certainly might be a good idea, and it's probably worth talking to a pro who can run the numbers for you.

VA - You can't just switch the way you are paid at a whim.

I thought that was the point...to make a decision to switch from filing as a regular LLC to filing as an SCorp?