Discussion:Can an LLC avoid SE taxes?
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Discussion Forum Index --> Tax Questions --> Can an LLC avoid SE taxes?
| 8 February 2007 | |
| If an LLC elects to be taxed as an S-Corp, would the net earnings be exempt from self-employment tax? | |
Death&Taxes (talk|edits) said: | 8 February 2007 |
| Yes, the earnings after a reasonable salary was taken on which FICA/Medicare was paid. | |
| 8 February 2007 | |
| Thanks, D&T. It seems an LLC that elects to be taxed as an S-Corp will enjoy all the tax benefits of an S-Corp along with the flexability of ownership and profit splitting of the LLC may make this the best option for many small businesses, right? Why select an S-corp over this option? | |
| February 8, 2007 | |
| And all the pitfalls and traps of laws and rules that are not clear. You won't find a lot of check the stupid box fans here. There are too many possible troubles. You wanted an LLC, tax it like one. You want a corp, in my opinion, form one. There's a extensive thread just a week old on the LLC/SE issue. Dig it up and enjoy the reading. It might help you decide to remain an LLC. Or not. | |
Death&Taxes (talk|edits) said: | 9 February 2007 |
| Discussion: LLC, SE Tax, and Bifurcation of Income This discussion takes a while to REALLY get going, but it does illustrate how a LLC treated as a partnership can possibly have the same possibilities. | |
| 9 February 2007 | |
| Aweistock...an LLC that elects to be taxed as an S corp does enjoy all the tax benefits of an S corp, but it does NOT continue to enjoy the flexibility of ownership and profit splitting of an LLC. Once S is elected, it is a corp for tax purposes. It has to meet the same requirements to be an S corp that any other corp has to. If it fails, like any other failed S, it is a C corp.
Don't tread lightly on this issue. Know your operating agreement and make sure it meets the requirements. | |
| 9 February 2007 | |
| Aweistock, electing S status within an LLC will result in loss of much of the flexibility your are valuing in your LLC. The flexibility comes from partnership taxation rules. Try applying those to S corp taxation and the result will likely be termination of your S election. If the flexibility of an LLC is what you are looking for, treat the LLC as a partnership, not an S corp. If, as JR says, you like the way an S corp is taxed, set up an S corp.
Having said that, many tax professionals are assisting their clients determine what tax treatment is best after the LLC has already been established. It is usually a tough sell to get the client to see that a corporation is a better S corp than an LLC is after they have already set up the LLC, so the answer is to make the election to have the LLC taxed like an S corp. There are potential pitfalls down the road, however, in doing this. | |
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