Diane Posted February 27, 2009 Report Share Posted February 27, 2009 New Client - Last years tax return shows a Schedule C as an LLC. There is a loss. But, the single member owner pays himself a salary, withholds SS and MC taxes and issues himself a W2. Deducts his salary and the other employees as an expense. I don't think I've ever seen this before, so I'm a bit confused about the W2. I thought that if the single member of the LLC didn't elect to be treated as a Corporation, they filed a Schedule C and paid self employment tax. No W2. Am I wrong? Can he pay himself a salary because he's an LLC? Diane Quote Link to comment Share on other sites More sharing options...
joelgilb Posted February 27, 2009 Report Share Posted February 27, 2009 He should be file the Schedule C as you thought and pickup self employment income, but I have seen others pay themselves a salary in similar situations. Most often because it makes it easier to pay their taxes in for them. Better answer would be though, to be treated as a Corp and then elect S-corp status. Then the member escapes SS on the balance of the income, so long as the salary is reasonable Quote Link to comment Share on other sites More sharing options...
OldJack Posted February 28, 2009 Report Share Posted February 28, 2009 I don't have any current LLC/Sch-C business that the owner is taking a W2, but I have had in the past. In that case it was better to let the owner continue as it was the only way to get taxes paid-in on a timely basis. There are some that just will not pay large estimated taxes even though they know they should. If this is the case with your client, and since there isn't much difference in the taxes, I would let the client continue with the W2. Like Joel said, maybe this client needs to elect S-corp. Quote Link to comment Share on other sites More sharing options...
Diane Posted February 28, 2009 Author Report Share Posted February 28, 2009 Thank you for your help. I just wasn't sure how to handle this. I didn't do his payroll or his bookkeeiping, so couldn't control how it was being done. And, apparently this is the way he has been doing it for a while. I just needed to feel that it would be OK to continue with the status quo. Diane Quote Link to comment Share on other sites More sharing options...
Lion EA Posted February 28, 2009 Report Share Posted February 28, 2009 I'd deal with 2008 with the documents I was given, if they came from other bookkeeping. But, I'd lay out the correct procedure for 2009. Set him up for EFTPS to direct debit his ES, maybe. If he doesn't file ES, then can he be trusted to get you a good balance sheet, file annual reports with the state, and do other obligations of an S-corp? If he needs simplicity, he's probably better off as a sole proprietor/LLC. If he needs withholding, then explain the requirements for an S-corp. You do have a very few more days to make the election for 2009, if that's really best for him. You explain his choices; he makes the decision. You live with it or send him elsewhere. Maybe you can train his bookkeeper, preferably for a fee. Quote Link to comment Share on other sites More sharing options...
mcb39 Posted February 28, 2009 Report Share Posted February 28, 2009 I don't have any current LLC/Sch-C business that the owner is taking a W2, but I have had in the past. In that case it was better to let the owner continue as it was the only way to get taxes paid-in on a timely basis. There are some that just will not pay large estimated taxes even though they know they should. If this is the case with your client, and since there isn't much difference in the taxes, I would let the client continue with the W2. Like Joel said, maybe this client needs to elect S-corp. I agree with Old Jack. It is sometimes the only way to get them to pay taxes. I have a few and know it is not correct, but the IRS doesn't seem to have a problem with it as long as the taxes get paid. If they have a profit on the LLC, they still have to pay SE on the profit. Quote Link to comment Share on other sites More sharing options...
Diane Posted February 28, 2009 Author Report Share Posted February 28, 2009 I talked to him today and asked why he was doing the W2 -- cause that's the way I've been doing it since day 1. Quite a few years apparently, and he's had no comment from IRS. He did give me a balance sheet and P&L; no depreciation statement from last year (CPA won't give it to him). So, I think I'll do what Old Jack said; I'm not sure this guy would handle estimated payments well since he's been doing the W2 and not having to worry about it. I will mention the Sub S option also. Diane Quote Link to comment Share on other sites More sharing options...
taxtrio Posted February 28, 2009 Report Share Posted February 28, 2009 But letting him continue to keep himself on the "payroll" costs him more in the long run. I'll bet he is paying unemployment (fed and state) payroll taxes on himself this way... Taxtrio Quote Link to comment Share on other sites More sharing options...
Diane Posted March 1, 2009 Author Report Share Posted March 1, 2009 You have a point about the unemployment. I didn't think of that. And he probably wouldn't be able to collect any unemployment if his business goes under. At least in Maryland, (I think), if you have control over the company and you make the decision to close the business you can't collect. Diane Quote Link to comment Share on other sites More sharing options...
OldJack Posted March 1, 2009 Report Share Posted March 1, 2009 >>(CPA won't give it to him). << Warning! CPA's freely give documents unless they are trying to collect their bill. You should ask the guy if he has paid for last years tax work so you can deduct it. It would be best to get your fee up front with this guy. Quote Link to comment Share on other sites More sharing options...
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