Operating a business takes several factors to consider the following are the factors:
Payroll taxes: salaries paid to employees including owner employees are subject to Medicare taxes otherwise known as payroll taxes.
For the current taxable limits visit www.corporatedirect.com/accounting.
The largest expense a business will have is payroll at 15.3%. Given that Social Security is almost at bankrupt and citizens under 40 may never see their promised benefits, it becomes important to consider the best way to minimize payroll taxes.
In a C corporation that features a double tax on profits it makes sense to pay high as salary as possible in order to avoid the tax on dividend distributions. But with salaries come payroll taxes.
In an LLC, with its flow through tax treatment, profits flow through to the owners. The problem is that under eyeris guidelines weather taken as a salary are not profits are subject to payroll taxes for those LLC members active in the business.
S corporation you can pay yourself a reasonable salary which you pay payroll taxes on. Profits after salary can be flow-through to the owner without payroll taxes. Did you know that being an LLC you can elect to be taxed as an S corporation and achieve these benefits.
Business debts: an S Corporation’s business debts cannot be utilized by the shareholders unless they have personally guaranteed the debt. A personal guarantee means that if the corporation can’t pay the debt then you are obligated as an individual to repay the money. It is best to avoid personal guarantees. And S corporation, when the Company takes on the debt without shareholder guarantees the shareholders tax basis does not increase. In an LLC, the members get the benefits of the business debt whether guaranteed or not.
Corporate form: The primary advantage of S corporation status is that it allows businesses to operate in the corporate form without paying income tax at that corporation level. The S corporation is a flow-through entity: it allows loss is another deductions to be taken at the shareholder level. The primary disadvantage to S corporation status is its complexity. There are too many technical rules that conserve as pitfalls for those not looking out. Four instance, shareholder loans can create a second class of stock causing termination of S status.
It should be noted that several states, including California, Colorado, Florida and Idaho, do not afford charging order protection to single member LLC’s. If you are in those states, or are concerned that such a Conset meant spread to other state you may want to have your LLC owned by more than one person. Even of 2% is on by another individual or entity you will have created a multimember LLC and be better protected. Nevada or Wyoming elk LCs specifically offer protection on single-member LLCs. Feel free to obtain more information at www.corporatedirect.com/LLC.