Business Entity

I have an LLC filing as an S Corp. I am paid a salary through the S Corp. The S Corp pays my benefits, etc.

I receive an annual dividend that is taxed at a 15% clip. The red flag is when the owner takes an unreasonable dividend % versus the income taken out. What I have read is that a 75% income 25% dividend is reasonable.

In addition, taking an S Corp election requires filing an application with the IRS showing justification for doing so. Which usually means demonstrating you intend to grow the business.

 

I do the LLC with a S Corp tax structure also. I pay myself $750 a week salary, which is based on average annual income of truck drivers in my area according to Dept of Labor. Income tax and SSI paid on that. Anything else the "company" makes is distribution to me. That is only income tax and avoids SSI taxes. $150 to establish LLC with the state and a simple form to file with the IRS to establish S Corp tax structure.

This really is only viable if one is actually netting more than the average driver annual income for your area. For Iowa, it is $39,000 - $41,000 a year.

 

You have the right concept, but your expectations are suffering delusions of grandeur. What you want to contribute is way beyond what the IRS will allow you to contribute, for both the employer and employee contribution.

 

Don't you mean that is capital gains and is not subject to social taxes like fica?

 

I did it under a c Corp for a lot of reasons, one is that the money after taxes can be directly put into a deferred tax retirement accout like a 401k or an Ira. I don't take money out of the company and can move it to a trust or some one else without the issues of an llc.

But this all depends on what you want to do and having a good accountant who can map out what's what and a lawyer who can properly set it up, and file the annuals saves a lot of grief.

 

It is not capital gains, but a distribution, so subject only to normal income taxes. Capital gains falls into a different tax rate. But yes, distributions are exempt from FICA tax. Doing LLC avoids many of the regulatory hassles of incorporating, while the S Corp tax structure allows the tax benefits. Best of both worlds.

http://www.bizfilings.com/toolkit/news/tax-info/llc-plus-scorp-equal-best-of-both.aspx

 

Ok I got it, I do dividends so it is different. Thanks for the clarification.

However i went to a c Corp for protection first and then for taxes. I pay more taxes (in number of taxes) but I have a lower tax liability. Works for me, but won't for many.