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S-Corp Election
Posted on 1/25/13 at 9:17 am
Posted on 1/25/13 at 9:17 am
So I am an LLC and I want to stay an LLC. What is the cons of doing an S-Corp Election on my LLC? I have very high profits and I am tired of paying the 15% FICA on all of it. Any thoughs? Any extra state things I need to worry about?
3
Posted on 1/25/13 at 10:57 am to ColdDuck
S-corp accounting work will cost you a little bit more since you have to file a separate 1120S return. No state problems since LA gives you an s-corp exclusion. It all flows to your personal income tax return.
Posted on 1/25/13 at 11:57 am to ColdDuck
S-Corp is the tax savings for you and your business. Members of an LLC are subject to employment tax on the entire net income of the business. While only the wages of the S-Corp shareholder who is an employee are subject to employment tax. The remaining income is paid to the owner as a 'distribution' which is taxed at a lower rate if at all!
Posted on 1/25/13 at 12:01 pm to LSUchuck
Say my "profit" is 110K. I then pay myself 100K and keep 10K in the business. I currently take that 100K and transfer money to my personal account once a month. I then have to pay regular Fed taxes and the 15% FICA on the whole amount (110K minus personal exemtpions, etc). If I do an S-Corp election, then I can "pay" myself 50K (with W2) and take a distribution of 50K. Then I only have to pay the FICA part on the first 50K and regular fed on the remaining 60K. So that $9000 savings is well worth the extra couple hundred bucks to my accountant. Am I missing something?
Posted on 1/25/13 at 1:58 pm to ColdDuck
Sounds pretty complete
Posted on 1/25/13 at 2:27 pm to ColdDuck
quote:
Say my "profit" is 110K. I then pay myself 100K and keep 10K in the business. I currently take that 100K and transfer money to my personal account once a month. I then have to pay regular Fed taxes and the 15% FICA on the whole amount (110K minus personal exemtpions, etc). If I do an S-Corp election, then I can "pay" myself 50K (with W2) and take a distribution of 50K. Then I only have to pay the FICA part on the first 50K and regular fed on the remaining 60K. So that $9000 savings is well worth the extra couple hundred bucks to my accountant. Am I missing something?
This is my understanding. I actually did that this past year where I was in a ind. contractor situation and making a decent amount of money. I am back in an employer/employee situation and getting W2'd and am in the process of shutting it down. My accountant told me that you should be able to justify your salary. IE you can't pay yourself 20k as a lawyer, while taking a 80k distrubtion. I think what is reasonable is fairly subjective, but the above example obviously isnt.
Posted on 1/25/13 at 8:37 pm to ColdDuck
You should definitely move to an S-corp, just make sure you pay yourself a "fair" salary.
Betters me that election soon before time runs out for 2013 elections,
Edit: I am a CPA, but its Friday night and I'm under the influence, so take that for waits it worth.
Betters me that election soon before time runs out for 2013 elections,
Edit: I am a CPA, but its Friday night and I'm under the influence, so take that for waits it worth.
This post was edited on 1/25/13 at 8:40 pm
Posted on 1/25/13 at 11:36 pm to SippyCup
Thanks to all. I will talk to a CPA next week and see if this is a good choice.
Posted on 1/26/13 at 3:52 am to ColdDuck
Isn't there a time period to make the election, like 90 days after the LLC is formed? You can't just switch it whenever, right?
Posted on 1/26/13 at 8:29 am to Captain Want
March 15 if your on a calendar year.
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