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When An LLC Should Move To Being Taxed As An S-Corp
Manage episode 407253293 series 3561782
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When does it make sense for an LLC to elect to be taxed as an S-Corp? If you work for yourself anyway, what’s the difference? There are a few things to keep in mind when determining how you want your business to be taxed.
Some of the biggest considerations in making this tax decision is how much to pay yourself as an employee based on the market, how much in revenue and profit the business is making, whether you’re able to take advantage of the QBI deductions, and how much they might already be helping you.
S-Corp tax advantages are discussed further by Deb and me, but we also discuss the social security and medicare benefits you need to keep in mind. Your decision to be taxed as an S-Corp is based on how much money you keep and how much money goes to your business and taxes.
In this episode, listen for:
[15:41] Social Security’s taxable wage base is limited to around $140,000. This represents the 15% of your income that is subject to taxation.
[16:52] If your salary exceeds $140,000, you will “max out your contribution” to Social Security taxes. This means there are tax savings to be had if your annual salary is less than $140,000.
[18:28] There are consequences if you take the S corporation election and decide to give yourself a reduced income. One piece many miss is that when you’re on a lower income, you don’t contribute much to and effectively reduce your future Social Security benefits.
Taxes must be factored into your compensation as a business owner before you can begin to pay yourself. If you’re a salaried employee, keep the associated expenses with running payroll in mind.
S-Corp tax rules are important to understand prior to making an election for your business. We strongly advise you to seek legal counsel and talk with your CPA if you find yourself trying to decide whether to elect to be taxed as an S-Corp or to remain as an LLC.
Bona Fide Finance:
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Student Loan Tax Experts:
Website: https://studentloantaxexperts.com
LinkedIn: https://www.linkedin.com/company/student-loan-tax-experts/
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