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greenchoppers
12-15-2011, 07:19 PM
Hello,

Wondering how many of you have changed from straight LLC to S-Corporation? Was the change beneficial to you and are there any regrets?

Thanks for your replies.

NEW CITY LAWN CARE LLC
12-15-2011, 07:30 PM
Hello,

Wondering how many of you have changed from straight LLC to S-Corporation? Was the change beneficial to you and are there any regrets?

Thanks for your replies.

Single owner? I would think the tax benefits from being a single owner LLC would be greater that of a Corp...

DA Quality Lawn & YS
12-15-2011, 08:48 PM
I believe with an LLC you can still file on your 1040 form, no?

NEW CITY LAWN CARE LLC
12-15-2011, 08:52 PM
I believe with an LLC you can still file on your 1040 form, no?

Yes you can file your home and business together being a single member LLC

Kelly's Landscaping
12-16-2011, 12:18 AM
"A major factor that differentiates an S corporation from an LLC is the employment tax that is paid on earnings. The owner of an LLC is considered to be self-employed and, as such, must pay a “self-employment tax” of 15.3% which goes toward social security and Medicare. The entire net income of the business is subject to self-employment tax.*

In an S corporation, only the salary paid to the employee-owner is subject to employment tax. The remaining income that is paid as a distribution is not subject to employment tax under IRS rules. Therefore, there is the potential to realize substantial employment tax savings. Case in point:

Mary owns a print shop. In keeping with the industry standard, Mary decides that a reasonable salary for a print shop manager is $35,000 and pays herself accordingly. Mary’s total earnings for the year are $60,000: $35,000 paid in salary and the remaining $25,000 paid as a distribution from the S corp. Mary’s total employment tax is $5,355 (15.3% of $35,000).

If Mary were the owner of an LLC, she would have to pay employment tax on the entire $60,000, equaling $9,180. But as an S corporation, she realizes savings of $3,825 in employment tax.

One might assume that these savings could be further manipulated by reducing the salary to an extremely low amount and attributing the rest of one’s earnings to distributions—but this would be an incorrect assumption. In practice, the IRS is careful to notice whether a salary is reasonable by industry standards. If it determines a salary to be unreasonable, the IRS will not hesitate to reclassify distributions as salary"


As you can see they are not equal so you want to pick the one that best helps you.

NEW CITY LAWN CARE LLC
12-16-2011, 12:26 AM
"A major factor that differentiates an S corporation from an LLC is the employment tax that is paid on earnings. The owner of an LLC is considered to be self-employed and, as such, must pay a “self-employment tax” of 15.3% which goes toward social security and Medicare. The entire net income of the business is subject to self-employment tax.*

In an S corporation, only the salary paid to the employee-owner is subject to employment tax. The remaining income that is paid as a distribution is not subject to employment tax under IRS rules. Therefore, there is the potential to realize substantial employment tax savings. Case in point:

Mary owns a print shop. In keeping with the industry standard, Mary decides that a reasonable salary for a print shop manager is $35,000 and pays herself accordingly. Mary’s total earnings for the year are $60,000: $35,000 paid in salary and the remaining $25,000 paid as a distribution from the S corp. Mary’s total employment tax is $5,355 (15.3% of $35,000).

If Mary were the owner of an LLC, she would have to pay employment tax on the entire $60,000, equaling $9,180. But as an S corporation, she realizes savings of $3,825 in employment tax.

One might assume that these savings could be further manipulated by reducing the salary to an extremely low amount and attributing the rest of one’s earnings to distributions—but this would be an incorrect assumption. In practice, the IRS is careful to notice whether a salary is reasonable by industry standards. If it determines a salary to be unreasonable, the IRS will not hesitate to reclassify distributions as salary"


As you can see they are not equal so you want to pick the one that best helps you.

But another point to make here would be she would only pay Self-Employment tax on her Net Profit after ALL expenses have been deducted from total earnings for the year...Ohh and last year with tax breaks this figure on line 6 of Schedule SE was a 50% Deduction, so only 7.65% in Tax on Net Profits..

Kelly's Landscaping
12-16-2011, 01:39 PM
Obviously you have a LLC I happen to have and S corp. In the example I posted it was something I found explaining the differences and was set up that the 60k was the amount left over after the deductions had been taken. Which means there is a significant savings in that example. I can tell you first hand I get a nice salary and anything else is a dividend so pay very little in income taxes.

The question was is there a benefit for going S and clearly there can be. If you recall the 2004 elections Edwards was criticized because he set his law practice up as and S corp which saved him $600,000 in self employment tax. I tend to think the OP ought to do a search online LLC vs S corp and read the benefits and negatives to each and both have them.

DA Quality Lawn & YS
12-16-2011, 02:16 PM
Obviously you have a LLC I happen to have and S corp. In the example I posted it was something I found explaining the differences and was set up that the 60k was the amount left over after the deductions had been taken. Which means there is a significant savings in that example. I can tell you first hand I get a nice salary and anything else is a dividend so pay very little in income taxes.

The question was is there a benefit for going S and clearly there can be. If you recall the 2004 elections Edwards was criticized because he set his law practice up as and S corp which saved him $600,000 in self employment tax. I tend to think the OP ought to do a search online LLC vs S corp and read the benefits and negatives to each and both have them.

So for an S Corp, for non salary earnings, you state it is a 'dividend'. Is this the same as retained earnings? Not sure what you mean by a dividend as there is no dividend being paid out to anyone.

wbw
12-16-2011, 04:17 PM
So for an S Corp, for non salary earnings, you state it is a 'dividend'. Is this the same as retained earnings? Not sure what you mean by a dividend as there is no dividend being paid out to anyone.

You write yourself a dividend check instead of a paycheck. Do not confuse your status with the IRS regarding pass through taxation with legal protection in case of lawsuit. You cannot co-mingle your monies.

wbw
12-16-2011, 04:18 PM
Answer ot OP's question. It varies on a case by case basis and you will need qualified legal and/or accounting guidance to make the proper decision.

Kelly's Landscaping
12-16-2011, 05:09 PM
Thanks wbw at-least you seem to get this I am often shocked how few business owners on this site know the advantages of an S corp. Yes Quality it means we write our selves checks which means me and my partner each cash and put them in our personal accounts on top of our 850 dollar a week salary checks. Now if we leave money in the company at the end of Dec it becomes retained earnings. So on our salaries we pay the self employment tax on our profits we do not. Plus all writes offs pass through to us which means the income taxes we pay on our salaries tends to come back to us in the form of refunds. The S corp dose get a refund each year as well which is the fed gas tax on any off road use which works out to about 500 dollars a year. Not a whole lot but its nice to get that in March or April when your starting back up.

NEW CITY LAWN CARE LLC
12-16-2011, 05:12 PM
So your saying if you write yourself a dividend check you don't pay income taxes on it?
Posted via Mobile Device

wbw
12-16-2011, 05:46 PM
So your saying if you write yourself a dividend check you don't pay income taxes on it?
Posted via Mobile Device

He doesn't pay self employment tax (fica...social security and medicare) on it. Whether or not he pays income tax is determined by other factors but it is taxable income. He probably has write offs to offset it.

NEW CITY LAWN CARE LLC
12-16-2011, 06:27 PM
He doesn't pay self employment tax (fica...social security and medicare) on it. Whether or not he pays income tax is determined by other factors but it is taxable income. He probably has write offs to offset it.

Of course income is taxed regardless of where it came from, but it seems the S. Corp. would only benefit someone making over 150K or more

Kelly's Landscaping
12-16-2011, 06:42 PM
New City I don't know how I can make this clearer for you. What many people refer to as self employment tax is social security and medicare. Now for employees they pay their half and they are done with it but employers get screwed since they pay both halves which is 15.3% so imagine you create a large landscaping company where you profit 100k a year above your salary if you take it as a dividend rather then income you save $15,300 dollars.

Now as for income taxes there are different rates for income vs investment returns or dividends and when our new president takes over many have stated lowing that number further. So lets take Newts version 12.5% for capital gains in an S corp that would mean any profits above your salary would then be taxed at 12.5% plus what ever your state or county adds on. Now that's a huge savings over 30-35% rates for upper incomes but it also is a cut for lower guys like us too. Now I get your deductions argument but its misplaced this is for income above and beyond deductions and my deductions last year were 218,000 so I might know something about write offs here.

NEW CITY LAWN CARE LLC
12-16-2011, 06:46 PM
Ohh yeah I had a lot of deductions too, and tax breaks, almost put my profit down to 20K.... even though I pocketed more money than that, but on paper it went down really low...

NEW CITY LAWN CARE LLC
12-16-2011, 06:50 PM
It just seems in comparison your either paying taxes on profit or your paying taxes on income, and like I mentioned earlier the SE tax was reduced 50% the past few years to 7.65%, so if we were to look at each structure side by side, it just seems at the very end of everything the #'s would be so very close...

And what I'm comparing in my head is a Company S Corp. filed seperatly from personal Income vs. a single member LLC who files his business and home together in One return...

wbw
12-16-2011, 07:09 PM
It just seems in comparison your either paying taxes on profit or your paying taxes on income, and like I mentioned earlier the SE tax was reduced 50% the past few years to 7.65%, so if we were to look at each structure side by side, it just seems at the very end of everything the #'s would be so very close...

And what I'm comparing in my head is a Company S Corp. filed seperatly from personal Income vs. a single member LLC who files his business and home together in One return...

1) When you pay taxes on the income you also pay an additional 15.3% SE tax on top of your income tax.

2) Are you serious? Only 7.65%? This is temporary it will go back to 15.3% and probably higher.

3) When you compare side by side you will pay an additional 15.3% on the difference between salary and dividend.

NEW CITY LAWN CARE LLC
12-16-2011, 07:48 PM
But if you don't have a lot of deductions for your personal return then the taxes paid would end up higher overall filing seperate returns
Posted via Mobile Device

wbw
12-17-2011, 09:20 AM
S corp is pass through to the IRS also. Either you have the deductions or you don't. I am not saying that you made the wrong choice. I am saying that there are differences. In the past I have had bot LLC's and S corps. Currently we have both at my house. Each situation is different. Seek competant professional counsel.

dmk395
12-19-2011, 06:42 AM
Kellys-
Don't you get nailed on WC and more liab. insurance on your earnings personally?

Kelly's Landscaping
12-19-2011, 01:13 PM
WC is required for employees in this state but not on owners. You can opt to buy it if you choose but we only put it on our guys. As owners we tend to work a lot safer then they do not sure if its Int or just experience but I'm often stunned how dumb employees can act. But back to your question if we did put WC on our earnings it wouldn't be applied too dividends just salary. But the savings on payroll is nice we pay 4% WC so on the owner salaries of 850 a week each is a savings of 34 dollars a week each. That adds up to allot of money.

Efficiency
12-20-2011, 07:40 AM
S corp is pass through to the IRS also. Either you have the deductions or you don't. I am not saying that you made the wrong choice. I am saying that there are differences. In the past I have had bot LLC's and S corps. Currently we have both at my house. Each situation is different. Seek competant professional counsel.

I also have both. Here is the best advise: spend the coin to get a tax lawyer and CPA in the same room for as long as you need. That is an investment that will pay great returns.

Fvstringpicker
12-20-2011, 11:45 AM
Ok, ok. The income from a S-corp passes through to the owners who report it on line 17 of the 1040 form. For example, two 50% owners of an S corp that earns $100k will report $50k on their individual tax returns. So each shareholder of S corp stock report their share corporate income based on stock ownership.
Don't confuse this with dividend income from a C corp. It ain't the same.
I just don't know what I'm going to do with you guys :)

wbw
12-20-2011, 01:04 PM
Thanks professor! This would be why I always recommend professional guidance. It is always cheaper and easier in the long run.

NEW CITY LAWN CARE LLC
12-29-2011, 12:08 AM
http://money.cnn.com/2008/01/10/smbusiness/s-corp_or_llc.fsb/index.htm