| It goes without saying that the LLC is the media darling | | | | A single owner LLC runs into a unique quark in the |
| when it comes to choosing an entity for small | | | | world of taxation. Simply put, the IRS does not |
| businesses. In some cases, however, an LLC is at a | | | | recognize the viability of single owner LLCs for tax |
| disadvantage compared to an S Corporation. | | | | purposes. Instead, the agency simply treats these |
| Originating in the late 1970s in Wyoming, Limited Liability | | | | entities as sole proprietors. This means the owner |
| Companies have rise to loft heights. They are arguably | | | | must report the finances of the LLC on schedule C of |
| the single most popular and most used entity for small | | | | his or her tax return. The owner also must pay the 15.3 |
| business start ups. Why is this? Well, the LLC offers | | | | percent self-employment tax on the full profit of the |
| the tax advantages of a partnership along with the | | | | LLC. Ouch! |
| liability protection of a corporation. At the same time, | | | | For sole ownership situations, the S corporation is |
| the LLC does not require owners, known as members, | | | | usually a better bet than the LLC for tax purposes. |
| to comply with the formalities of a corporation. In truth, | | | | Yes, it requires you to comply with a few more |
| said formalities are pretty simple, but there you are. | | | | corporate formalities, but this is hardly difficult since you |
| So, is an LLC always the best choice for a small | | | | are the only owner! In a tradeoff for a bit more work, |
| business just getting rolling? When it comes to legal | | | | you get a major tax break. You can avoid part of the |
| issues, you should know there is never a situation | | | | self-employment tax from the earnings of the |
| where "always" is going to be appropriate. This case is | | | | corporation by claiming part of them as a dividend |
| no different, particularly if we are talking about a single | | | | instead of payroll. |
| owner LLC. | | | | How much can be claimed as a dividend? Well, the |
| States love to generate income from business entities. | | | | IRS expects you to take a reasonable salary from the |
| To create an entity, you have to pay a fee. To keep it | | | | company. Arguably, this is what others in your industry |
| running each year, you have to pay a fee. To make | | | | would be paying. Since that is a rather vague figure, a |
| any modifications to the structure, you have to pay a | | | | better approach is to sit down with your accountant |
| fee. You get the idea. In there haste to embrace the | | | | and come to a decision what the two of you could |
| LLC, most states allow for a single owner LLC. It | | | | justify if the IRS came a knok'n! Regardless, the |
| sounds like a great entity opportunity until one gets | | | | avoidance of the 15.3 percent self-employment tax is |
| around to paying taxes. Then the benefits of an LLC | | | | a major advantage afforded by the S-corporation |
| come into question. | | | | over the LLC. |