LLC taxed as Sole Propieterversus LLC taxed as S-corps

[tennisboy]

Yep. thanks

[Evan]

I agree with David's analysis. I think you're confusing an LLC (versus a corporation) taxed as an S-Corp and whether it's easier to be compensated. It's an IDENTICAL process, the only difference is it's "Your Co, Inc." versus "Your Co, LLC" -- the same tax filings will be required.

Estimated tax payments won't be calculated by QuickBooks, which is an accounting software. You need the advice of an accountant or tax professional to know what your estimated tax payments should be. However, if you're paying yourself a salary, I'd try baking into your salary withholdings any taxes you think you'll owe on distributions. So instead of following the standard chart for a person making $50K when you plan to take an additional $50K in distributions, you should see what the wittholdings should be for someone earning $100K and just adjust accordingly. Alternatively, you can file quarterly estimated tax payments.

[tennisboy]

Thanks. So let me get this straight. Assuming I go the full S-Corps route:

1) I pay myself a (quarterly, monthly, whatever) salary with W-2; AND
2) This salary can be the exact same amount as if I was an LLC (e.g. no withholdings) IF
3) I pay quarterly estimated taxes; WITH THE PROVISO THAT
4) I use my entire take home - salary plus what I think the Dividend/Distribution amount will be- to determine what those quarterly estimated tax payments should be.

Right?

[Evan]

No. If you're an S-Corp (LLC or as a corporation), you:

1) Pay yourself at whatever frequency for which you'll get a W-2. You need to withhold income tax (federal/state), SS, medicare. Additionally, the LLC/corp (taxed as an S-Corp) will be required to chip in to SS/Medicare, plus federal unemployment. Additionally, you will be required to pay into the Massachusetts unemployment funds.

2) If you intend to take dividends/distributions, you should be paying quarterly estimated taxes. However, IF you know that you're going to be taking $100K in distributions (or ANY amount) for the year, you should see how much INCOME tax should be withheld at that level, and adjust your W-2 accordingly. It'd allow for you to have to pay less (or no) estimated taxes, as they're already paid. This means instead of taking home $1K each week, which after taxes may be $600, you'd voluntarily add an additional $100 in income tax (ONLY), to receive $500. The reason you're doing this is you know down the road, you're going to take a dividend of $2K, and you're trying to put that $100 (each pay period) towards the income tax you'll have to pay on that distribution.

If you're an LLC taxed as an S-Corp, or just a corporation taxed as an S-Corp, THERE IS NO DIFFERENCE WHATSOEVER in the way you handle compensation. They're the same thing.