The Motley Fool Discussion Boards

Previous Page

Financial Planning / Tax Strategies

URL:  http://boards.fool.com/1-a-single-member-llc-is-taxed-as-a-24289204.aspx

Subject:  Re: S corp vs LLC Date:  6/29/2006  6:36 PM
Author:  CKLA Number:  87616 of 121572

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.

Phil
----------------------

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 ?

Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us