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Financial Planning / Tax Strategies
|Subject: Re: S corp vs LLC||Date: 6/29/2006 6:36 PM|
|Author: CKLA||Number: 87616 of 124787|
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.
Thanks, Phil. Just so I understand, with an S Corp, only a "reasonable" salary for the owner (me) is subject to self-employment tax, whereas with an LLC, all net profits are subject to self-employment tax. So I'd pay less self-employment taxes with an S Corp ?
And just to clarify, I presume that under either legal structure, I'm paying income taxes on the entirety of the net profits, so that's a push ? With the LLC, it all shows up as my income on schedule C and is all subject to income taxes (on top of self-employment tax); with an S corp, the salary shows up as salary income (subject to both income and self-employent tax) and the remainder shows up on schedule E (subject to income tax only). Do I have that right ?
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