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Old 02-24-2018, 10:38 PM
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Want to form an LLC to avoid some SE taxes

I'm a Ohio native who will be working for 60 days in California as an independent contractor. Basically, I will be running newspaper subscription crews at grocery stores. I will make about $60,000 in 60 days and I will have about $5000 in expenses. Last year I made about the same amount of money and I had to pay alot in self employment taxes. My question is would it be a benefit to me to form an LLC to save on SE taxes? Once again, I will clear about 55k. I also understand the basics that you have to pay yourself a fair salary. I would like to pay myself about $20,000 and then take the remaining $35,000 as dividends.



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Old 02-25-2018, 12:27 AM
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I'm a Ohio native who will be working for 60 days in California as an independent contractor. Basically, I will be running newspaper subscription crews at grocery stores. I will make about $60,000 in 60 days and I will have about $5000 in expenses. Last year I made about the same amount of money and I had to pay alot in self employment taxes. My question is would it be a benefit to me to form an LLC to save on SE taxes? =======>I guess you mean a SMLLC not partnership of MMLLC, then, you still need to pay SE taxes to IRS; Owners of a single-member LLC are not employees and instead must pay self-employment tax on their earnings.Aslongas you want to avoid paying SE taxes, then you need to set it up as a S corp; an S corp only pays FICA taxes on salary compensation to its owners, and not the remaining profits paid out as nontaxable dividend distributions


Once again, I will clear about 55k. I also understand the basics that you have to pay yourself a fair salary.========>It depends; if you set it up as a S corp then you need to pay yourself a salary by letting the S corp issue a W2 to you as a n owner/employee however, as a SMLLC, The IRS automatically designates a single-member LLC as a sole proprietorship for federal tax purposes. As a Sole proprietor, you are responsible for reporting all earnings and losses of the business on your 1040 . This requires you to separately report your SMLLC earnings and deductions on a Sch C or C-EZ to calculate the SMLLC?s taxable income. However, you then transfer this amount to your personal tax return and combine it with the other income and deductions that don?t relate to your SMLLC. As a result, the IRS will not recognize any payments you take from SMLLC profits as a deductible salary. The owners of a corp are shareholders and they receive dividends as a return on their investment. So as said, The owners of an S corp pay regular income tax on their distribution, but they are not considered to be self-employed, so they pay no self-employment tax on this distribution.

I would like to pay myself about $20,000 and then take the remaining $35,000 as dividends=======>Then you need to set it up as an S corp;you still need to pay FICA , I mean social taxes on your salary of $20K an also need to pay Capital gain tax on your dividend ONLY when the dividend amount exceeds its basis; once you could become an S corp and save the "double taxation" problem of being a shareholder in a corp. an S corp is considered a pass-through taxing mechanism. That is, the tax on the corp is passed through to the owners for federal income tax purposes, but not the corporation itself. In all other ways, an s-cor operates the same way as corps;an S corp is taxed in a different way from corps, and the owners of an S corp don't have the double taxation problem,however When starting a business or changing your business structure, one of the most common options business owners evaluate is whether to form an S corp or C corp. These are the two most common ways to incorporate, and the choice really depends on your business goals. Please contact an IRS Enrolled Agent / a CPA doin gtaxes in your local area



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