Originally Posted by britsteroni
I mean no offense, but I have no idea what you meant by "it's better to grow in to your boots than the walk barefoot to the shoe store."
An LLC taxed as a S-corp still has the same filing requirements as an S-corp. The LLC means nothing to the IRS. They can either be taxed as sole-props, s-corps, or partnerships.
I agree 40 accounts has nothing to do with it. I apologize for making assumptions.
I still stand by my original post of questioning the value of incorporating with one part time employee.
I don't know your accountant and am making no judgments about his advice, but at least hear me out. First of all, the accountant has something to gain by pushing into S-Corp status. Instead of just filing your 1040, he now will file your 1120S and 1040 plus the additional payroll filing requirements as I'm assuming you don't want to handle those yourself.
So for the extra headache, you are going to be paying additional accounting fees of around $1,000 (for 1120S prep, for meeting with the accountant, and for the additional payroll filing requirements).
So for you to JUST BREAK EVEN, you would need to save at least $1,000 in payroll taxes. If you show a $20,000 profit, you would need to pay yourself just $13,465.00 and take $6,535.00 as a distribution.
This would be the math:
Sole-Proprietor - $20,000 proft x 15.3% in self-employment taxes = $3,060 in payroll taxes.
S-corp = $13,465 in salary x 15.3% (you pay half, the S-Corp pays half) = $2,060 in payroll taxes plus additional accounting fees of $1,000 = $3,060 in taxes plus compliance.
Now, that also assumes $13,465 is a reasonable salary for someone who owns a business and works full-time in the business with only one part time employee. I doubt you could find very committed workers for $13,465/year even in this seasonal business.
Again, just trying to be helpful and let you know what you're deciding on.
Good points here. What's a reasonable salary? Maybe $35k. You save money on dividends taxed at a lower rate.