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Financial Planning / Tax Strategies
|Subject: Re: S corp vs LLC||Date: 6/29/2006 4:13 PM|
|Author: TMFPMarti||Number: 87611 of 121114|
I understand that there is some nuance between an S corp and a LLC with respect to how / if I can deduct self-employment taxes, though, but I don't fully understand that. Does anyone have a simple explanation for me ?
I have a simple explanation. For something really worth reading, wait for the people who really know this stuff.
1. A single-member LLC is taxed as a sole-proprietorship on Schedule C. A sole-proprietor's net income from Schedule C is subject to self-employment tax. A sole proprietor gets an adjustment, a/k/a deduction, for half the self-employment tax.
2. An S-Corp pays its employees, including shareholders who work there, wages which are subject to payroll taxes. The corporation deducts the payroll taxes it pays. Employees deduct nothing.
After an S-Corp shareholder has taken a "reasonable" salary, the rest of the profit flows to his Schedule E, where it is not subject to self-employment tax.
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