PA: Corp-to-Corp and name needed for contracts

[pixelrogue1]

You opened an LLC just to manage the rental property? What do you believe that did for you? I think that you need a sit down with a business attorney to talk about your various business models. You also need a sit down with a tax professional (after you sit down with the business attorney) to make sure that you understand any tax ramifications from whatever models you choose.

All due respect I am not looking to disect something that is nearly 15 years ago. Focus remains in the corp-to-corp consulting that will allow me to maximize returement contributions.

 

[pixelrogue1]

Thoughts in terms of impact if switching an LLC to an S-Corp?

 

[LdiJ]

All due respect I am not looking to disect something that is nearly 15 years ago. Focus remains in the corp-to-corp consukting that will allow me to maximize returement contributions.

Either you make an S-corp election for the current LLC that you have, and do the consulting as a DBA, or you open up a new LLC and make up an S-corp election for that. Personally, I would do the latter, but its up to you.

 

[pixelrogue1]

Either you make an S-corp election for the current LLC that you have, and do the consulting as a DBA, or you open up a new LLC and make up an S-corp election for that. Personally, I would do the latter, but its up to you.

I am leaning towards a separate incorporation for the s-corp. I am already consulting for a client (w/paperwork, insurance etc all under the DBA (and the request for the LLC to be added which started the thread)

What impacts would there by electing to be taxed as an s-corp?

 

[FlyingRon]

The major downside is that it makes your tax filings MUCH more difficult. Right now, you just flow through all your income and expenses to the various 1040 schedules (sched C for your work, sched E for rents received). You pay SE tax on your work income.

With the LLC with S Corp election, you have to handle yourself as an employee, you must file tax returns for the LLC, you still have to file your personal taxes, and for any distributions other than your salary, you're going to have to handle the forms for that.

The only advantage of the LLC/S Corp would seem to be the slight possibility your consulting revenue would exceed what you'd be required to pay yourself in salary. You can escape the self employment taxes on that (though these are capped so if you're up there where this starts to get interesting, you might not be paying the tax anyway).

As stated, what it's not giving you in this "one man show" with one LLC is provide you any real liability protection. Which you stated was a goal in your first thread.

 

[pixelrogue1]

The major downside is that it makes your tax filings MUCH more difficult. Right now, you just flow through all your income and expenses to the various 1040 schedules (sched C for your work, sched E for rents received). You pay SE tax on your work income.

With the LLC with S Corp election, you have to handle yourself as an employee, you must file tax returns for the LLC, you still have to file your personal taxes, and for any distributions other than your salary, you're going to have to handle the forms for that.

The only advantage of the LLC/S Corp would seem to be the slight possibility your consulting revenue would exceed what you'd be required to pay yourself in salary. You can escape the self employment taxes on that (though these are capped so if you're up there where this starts to get interesting, you might not be paying the tax anyway).

As stated, what it's not giving you in this "one man show" with one LLC is provide you any real liability protection. Which you stated was a goal in your first thread.

If creating a separate S-Corp, I would imagine I am still needing to pay myself as an employee? As of today, taxes are personal income + schedule E.
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S-Corp:
• Salary only in the amount that will be contributed to retirement.
• S-Corp contributions to retirement (think that would be at 25% net?)
• Distribution for amounts beyond the retirement.

LLC:
• Schedule E

Personal Income:
• Standard personal income

Does this look reasonable? Good way to go about it...(presuming I forget the DBA and switch to a new s-corp incorporation)?

 

[LdiJ]

If creating a separate S-Corp, I would imagine I am still needing to pay myself as an employee? As of today, taxes are personal income + schedule E.
---------
S-Corp:
• Salary only in the amount that will be contributed to retirement.
• S-Corp contributions to retirement (think that would be at 25% net?)

Its gross not net. Salary needs to be a fair market wage for the work done for the company.

• Distribution for amounts beyond the retirement.

Distributions can be for amounts above fair market wage.

LLC:
• Schedule E attached to personal income (the same as I have been doing for years.)

Does this look reasonable? Good way to go about it...(presuming I forget the DBA and switch to a new s-corp incorporation)?

Baring the things I mentioned its not unreasonable.

 

[pixelrogue1]

Its gross not net. Salary needs to be a fair market wage for the work done for the company.

Distributions can be for amounts above fair market wage.

Baring the things I mentioned its not unreasonable.

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"Salary needs to be a fair market wage for the work done for the company."
Can you elaborate a little? I am not looking to pay myself much beyond what I am required to receive to contribute to retirement, and I was looking at letting that build up and then make the transactions once the amounts were ready.

Are there better ways of achieving the same goals? (corp-to-corp consultant to max retirement opportunities)

 

[LdiJ]

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"Salary needs to be a fair market wage for the work done for the company."
Can you elaborate a little? I am not looking to pay myself much beyond what I am required to receive to contribute to retirement, and I was looking at letting that build up and then make the transactions once the amounts were ready.

Are there better ways of achieving the same goals? (corp-to-corp consultant to max retirement opportunities)

You have to pay yourself what you would pay someone else to work the same hours doing the same thing. You have to have a regular payroll, with proper withholding. You might get away with something lesser than that for a year or two while you are building the business, but not in the long term.

 

[Taxing Matters]

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"Salary needs to be a fair market wage for the work done for the company."
Can you elaborate a little? I am not looking to pay myself much beyond what I am required to receive to contribute to retirement, and I was looking at letting that build up and then make the transactions once the amounts were ready.

The rule for S-corporations with shareholders who do work for the corporation is this: all distributions to the shareholder/employee will be treated first as wages/salary paid to the employee up until the point the employee has received reasonable compensation for all work the employee has ever done for the corporation. This means, for example, if the corporation paid you nothing for the first 5 years for the work you did and then at end of the 6th year made a large distribution to you, that distribution would be wage income to you up to the point where you have been paid reasonable compensation for all six years of work that you performed. For that wage income, the corporation must do the appropriate federal and state tax withholding, file the employment tax returns (Forms 941 and 940 for the feds and any required state returns), and issue the W-2.

In short, you are not required to make any payments or distributions to yourself in any year, but once you start taking it out, it comes out first as salary/wages to you until you have received reasonable compensation for all the work you have done for the corporation over the years. Reasonable compensation means the wage or salary that the corporation would have to pay some unrelated person (someone not a shareholder or related to the shareholder) it hired to do the same work; in other words, the typical salary/wage that companies are paying employees to do the work.

 

[pixelrogue1]

The rule for S-corporations with shareholders who do work for the corporation is this: all distributions to the shareholder/employee will be treated first as wages/salary paid to the employee up until the point the employee has received reasonable compensation for all work the employee has ever done for the corporation. This means, for example, if the corporation paid you nothing for the first 5 years for the work you did and then at end of the 6th year made a large distribution to you, that distribution would be wage income to you up to the point where you have been paid reasonable compensation for all six years of work that you performed. For that wage income, the corporation must do the appropriate federal and state tax withholding, file the employment tax returns (Forms 941 and 940 for the feds and any required state returns), and issue the W-2.

In short, you are not required to make any payments or distributions to yourself in any year, but once you start taking it out, it comes out first as salary/wages to you until you have received reasonable compensation for all the work you have done for the corporation over the years. Reasonable compensation means the wage or salary that the corporation would have to pay some unrelated person (someone not a shareholder or related to the shareholder) it hired to do the same work; in other words, the typical salary/wage that companies are paying employees to do the work.

Got it. I would be expecting this as a 1099, and I have an account dedicated to storing the taxes owed.

While some contractors hire a company for payroll (which issues a W2,) others are straight 1099, and they simply set aside the appropriate amount and pay it at tax time. I do not want to hire a company to handle payroll...it is just me and I am disciplined to set aside the required taxes.

 

[pixelrogue1]

You have to pay yourself what you would pay someone else to work the same hours doing the same thing. You have to have a regular payroll, with proper withholding. You might get away with something lesser than that for a year or two while you are building the business, but not in the long term.

1099, rather than hiring a payroll company. Do not think a W2 is required when it is your own business and no other employees.

 

[Taxing Matters]

1099, rather than hiring a payroll company. Do not think a W2 is required when it is your own business and no other employees.

You are wrong on that. If it is a corporation, then when doing workd for the corporation you are an employee of the corporation and the corporation must withhold tax, do the employment tax returns, and issue the W-2 even if you are the only employee. Remember, a corporation is a distinctly different entity from you. As far as the tax law is concerned, that corporation is just like any other employer you might have. And any other employer would have to do withholding, employment returns, and W-2. Your corporation would have to do the same thing. That is one of the downsides of operating as a S-corporation. You no longer treat yourself as self-employed. Instead, you are employed by a corporation, and it has to treat you like any other employee.

 

[LdiJ]

Got it. I would be expecting this as a 1099, and I have an account dedicated to storing the taxes owed.

While some contractors hire a company for payroll (which issues a W2,) others are straight 1099, and they simply set aside the appropriate amount and pay it at tax time. I do not want to hire a company to handle payroll...it is just me and I am disciplined to set aside the required taxes.

You cannot do that. It must be wages with proper withholding. You cannot do it as a contractor with a 1099. That is not an option.
Also, many people/companies illegally treat people as contractors when they are actually employees. Its not a "choice" for anyone or any company. A working shareholder of an S-corp may never be a contractor.

 

[pixelrogue1]

You are wrong on that. If it is a corporation, then when doing workd for the corporation you are an employee of the corporation and the corporation must withhold tax, do the employment tax returns, and issue the W-2 even if you are the only employee. Remember, a corporation is a distinctly different entity from you. As far as the tax law is concerned, that corporation is just like any other employer you might have. And any other employer would have to do withholding, employment returns, and W-2. Your corporation would have to do the same thing. That is one of the downsides of operating as a S-corporation. You no longer treat yourself as self-employed. Instead, you are employed by a corporation, and it has to treat you like any other employee.

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Summary of my new understanding:

1) Best option to maximize retirement contributions is through an s-corp (allows me to contribute as an employee, and the corp can contribute 25% of gross)

2) As an s-corp, I am required to manage salary through a W2.

3) Salary would then need to be run through a third party company to generate W2.

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Anyone with recommendations on third party payroll companies, and ideas on how to keep associated cost to a minimum?
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Debating now if the s-corp is worth the added expenses of W2 management (and associated registration expenses etc). Maybe stick with a more traditional Corp, foregoing the opportunity of the corporate contribution in favor of a more simplified 1099 (bringing me full circle back to the established LLC with the DBA)