Forums: Discussions for entrepreneurs and small business.

There are no Federal income tax differences between an actual S-corp and an LLC electing to be taxed as an S-corp.

My thoughts on the LLC vs S-Corp decision can be found here on my site.

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Accounting Made Simple | Sole Proprietor Tax Guide

For the "reasonable salary" part of the s-corp, if it`s a part time job, would it be appropriate to only list a part-time salary, or does the IRS pretty much force you to use comparable salaries based on full-time work?

By in large, the practical differences for your everyday, run of the mill small business between an S-Corp and an LLC are minimal at best.  Many times people think they can get away from paying employment taxes by going the S-Corp route, but that`s a very bad idea. 

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Clint A. Costa, Esq., CPA (Licensed in Illinois only)
SNSFE, P.C.
http://www.snsfe-law.com

Being an LLC, I will make an S election next year. Your best bet is to read the IRS site. S election means you pay taxes on the money you make as a salary, and expenses for everything associated with that salary are write offs, but the money left over at the end is not taxed. Reasonable salary means average salary for your type of business.


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Rosacea, Eczema, Hair Loss Solutions www.BlueSageNaturals.com P.O. Box 82864 Phoenix, Az 85071 602-674-0287

I`m curious. Why do you say that forming an S-Corp to save on SE Tax is a bad idea?

[Please note: I`m not trying to start an argument here. Just posing a respectful question.]

 

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Accounting Made Simple | Sole Proprietor Tax Guide

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Clint A. Costa, Esq., CPA (Licensed in Illinois only)
SNSFE, P.C.
http://www.snsfe-law.com

Agreed, sometimes people get rather aggressive with their definitions of "reasonable salary." And it sure does cause (huge) problems down the line.

Thanks for the reply, SLG.  (I`m actually currently writing a book on the topic of entity selection, so hearing other professionals` opinions/thoughts is quite welcome.)


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Accounting Made Simple | Sole Proprietor Tax Guide

LLC might be a more convenient structure in the long run for your business.

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Seo Consultant | Rattan | Microsoft Dynamics Nav | Autism Singapore | Industrial For Rent | Business Park | Gallbladder Surgery Singapore

In my opinion, for an S corp with no employees but the owners, the tax benefit of s corps are not worth the administrative headaches / cost of payroll, etc are not offset by the benefit until the owners start making $50-$60K a year.  With an LLC, you can start out being taxed as a disregarded entity (for individual) or partnership (for partners).  Once you start making the $50-60K (or expect to) you can make the S corp election at the start of the tax year.

There is a good bit of good information from the tax/accounting professional in this thread but there  is also a good bit of misinformation by those that are not in it.  That is what I always recommend consulting with a local professional.  For the record, to the original and old question, you don't need either entity type in order to deduct your expenses.