MAMalody Posted February 25, 2009 Report Share Posted February 25, 2009 I have a client who is thinking of starting a LLC, either Sub S or Sole Prop, and has made the follow statement: <<<I noticed that the LLC filing as an S-corp sounds most beneficial federally b/c it would allow me to take all extra profit as “distributions” & not be subject to SS & medicare taxation. Where if “Sole-prop” (even if an LLC) would mean all profits that come thru the business would be subject to this 15.3% taxation.>>> Now, my practice is so narrow that I have never done any type of LLC or Sub S...my client base just doesn't go there. My questions is, is this true? I believe that the statement about the Sole Prop is correct (even thought the % is wrong after the 1/2 SE adj.). I don't think the IRS will look at distributions the way that is being described here. Next, can someone give me a good reference to a LLC for Dummies book? Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted February 25, 2009 Report Share Posted February 25, 2009 Well, just as with any other Sub S, as long as he takes a 'reasonable' salary, the remainder of profits can be taken as 'distributions, which is one of the major reasons for popularity of the Sub S. Because it is often abused, it's also the current 'area of interest' for audits, of course. So explain to him that his salary needs to be reasonable, with all that that means. If his business requires a significant capital investment, not just his labor, then it does make sense. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted February 25, 2009 Report Share Posted February 25, 2009 It sounds like your client has been getting advice from the three B's - the Barber, the Butcher, and the Bartender. There is some truth to what he is being told, but of course he is not going to get all the nuances like "reasonable compensation" and "corporate governance" and not treating the corp like a sole proprietorship. However, the LLC S-Corp is not a bad entity choice for a lot of situations. I would not discourage it, but you need to educate your client about how a corporation is different than a proprietorship. Tom Lodi, cA Quote Link to comment Share on other sites More sharing options...
jasdlm Posted February 25, 2009 Report Share Posted February 25, 2009 Also depends on what type of business he is going to run. You might want to advise him on problems with owning real estate inside LLC if he elects S-Corp, etc. Also, S-Corp loses office in home deduction, etc. I'm not making any recommendation . . . just suggesting that there are many things to review with the client. Do you have the Kleinrock Business Quick Answers? Do you have a fax #? Quote Link to comment Share on other sites More sharing options...
MAMalody Posted February 25, 2009 Author Report Share Posted February 25, 2009 Do you have the Kleinrock Business Quick Answers? Do you have a fax #? No and 1-866-419-1838 Thanks. Quote Link to comment Share on other sites More sharing options...
jasdlm Posted February 25, 2009 Report Share Posted February 25, 2009 Okay . . . just sent you a fax, and tried to send you an email. Quote Link to comment Share on other sites More sharing options...
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