I am interested in finding out if forming an LLC (S-corp filing status) is right for my Wife and I. My wife is currently a realtor who is paid usually with a 1099 by other realtors. I work for the goverment and not in the real estate business. would like to know, as taxes are concerned, if it is more advantageos for us to create a co owned LLC with S-Corp filing status and have the LLC be compensated for the work she does (with that income passed to her) then file jointly to save on our over all tax liability.

I am interested in finding out if forming an LLC (S-corp filing status) is right for my Wife and I.==>Yes. The federal government typically allows an LLC with more than one member to be classified as either a partnership or a corp. Tax consequences for an LLC are often like a partnership or qualified joint venture ( aslongas you live in one of the 9 community pty states) Also, You can form your LLC taxed as a regular ?S corp that files a specific tax return and owes tax on the income. S corps compensate their working owners with wages just like other employees. the income is reported on a tax return for the business but passed through to the owners for assessment of tax. However, unlike a partnership, S corp profit does not incur an extra tax as self-employment income. Distributions of S corp profit also escape tax as dividends like distributions from C corps. This is why many prefer S corp election to regular C corp election.Reasonable compensation to owners is required before any profit distributions. Employment taxes , I mean social sec taxes, are assessed on these wages. As said, a special rule applies to an LLC not taxed as a S corp that is a partnership of a married couple. Instead of a separate tax return for the LLC as a partnership, a husband and wife may divide each item of income, expense and tax credit . This division is proportional to their percentages of ownership in the LLC. Spouses therefore account for respective shares of LLC income as if two separate businesses existed. Each spouse is credited with self-employment earnings that apply to calculation of tax and future benefits for Social Security purposes.this is called qualified joint venture in community pty states however, I guess in reality, even non community pty states allow QJV styled tax returns


My wife is currently a realtor who is paid usually with a 1099 by other realtors.=>Then you are on the right track instead of forming your (your joint biz) as a MMLLC, I mean LLC a partnership, you may form it as MMLLC(partnership) taxed as a S corp as said;as your spouse is a self-employed, one way to help avoid higher Social Security and Medicare taxes is to organize your business as an S-corp. Since she is self-employed she?ll usually have to pay higher Social Security and Medicare taxes, collectively known as self-employment taxes, SECA taxes, than if she were an employee of a company. One way to help avoid these higher taxes is to organize your business as an S-corp. The IRS may take a close look at your taxes if you choose this route, as you could end up lowering your overall tax liability while generating the same net income.

I work for the goverment and not in the real estate business. would like to know, as taxes are concerned, if it is more advantageos for us to create a co owned LLC with S-Corp filing status and have the LLC be compensated for the work she does (with that income passed to her) then file jointly to save on our over all tax liability.============>>As said, if you organize your business as an S-corp, you can classify some of your income as salary and some as a distribution. You'll still be liable for self-employment taxes Imean social sec taxes(FICA taxes) on the salary portion of your income, but you'll just pay ordinary income tax on the distribution portion. Depending on how you divide your income, you could save a substantial amount of self-employment taxes just by converting to an S-corp. The I RS tends to take a closer look at S-corp returns since the potential for abuse is so large. For example, if you make $500k in one year but only designate $20k of that as salary income on W2, you might trigger an IRS inquiry, since you are avoiding so much self-employment tax. The guiding principle is that you must designate a "reasonable" amount of your income as wages, rather than a distribution. What constitutes "reasonable" can often be a gray area, but if you push the envelope too far, you put yourself at risk for an IRS audit and potentially penalties and interest on any back taxes assessed by the IRS. If you're a member of a partnership,MMLLC, the IRS considers your income self-employment income. This means you're responsible for paying self-employment taxes in addition to income taxes. Because you are self-employed, partners don't have any money withheld by an employer, which means they typically must make estimated tax payments. S corps, on the other hand, are more complicated. As said previously,S corp owners must pay themselves a "reasonable salary" for the work that they do for the business. This amount counts as employee income, which means the S corp owner receives a W-2 form. The remainder of the income from the S corp passes through to the owners and is taxed at ordinary income tax rates on 1040.So basically there are pros and cons in choosing your biz as an S corp, I mean MMLLC taxed as an S corp. You may contact an Enrolled Agent or a CPA doing taxes in your local area

Thank you for the very thorough answer. The points you made make a lot of sense. I plan to speak with a CPA very soon to see if going this route is a good fit for us. Thanks again for clarifying this for me.