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Tax question for new business
Posted on 4/30/13 at 7:50 pm
Posted on 4/30/13 at 7:50 pm
I will be transitioning from w2 to 1099. I plan to set up an LLC and file as a sub s. Will have all business expenses go through the business, and pay myself a reasonable salary. I will then take distributions from the retained earnings. Any thoughts on my line of thinking?
Posted on 4/30/13 at 8:32 pm to BARNEYSTINSON
I'm pretty sure you can't take a salary as an LLC unless you treat it as an S Corp. you're going to pay taxes on these retained earnings whether you pay the money out to yourself or not. The business doesn't pay taxes, the owners do.
Poodlebrain will probably add a lot to the discussion.
Poodlebrain will probably add a lot to the discussion.
Posted on 4/30/13 at 8:50 pm to BARNEYSTINSON
This is a pretty standard plan for the avoidance of self-employment tax on significant amounts of s-corp income. The difference between the maximum salary subject to Social Security and the reasonable compensation you pay yourself from the s-corp will never be subjected to self-employment tax or Social Security withholding. If you assume a $50,000 annual difference and a 15% self-employment tax rate it results in a permanent savings of $7,500 per year.
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