September 16, 2016

Payroll Tax Responsibilities Of An LLC

Can a single member LLC elect to be treated as a Sub S by electing under Form 2553 and pay himself/herself a “reasonable compensation” salary and receive the balance as K-1 profit. Or is all of the income from a single member LLC, electing Sub S status subject to FICA/MED .Is this where I’ll see your response? http://www.llc-made-easy.com/single-member-llc.html

Answer

If you select sub-S classification, then your “reasonable” compensation will be subject to FICA/MED, also known as self-employment taxes.

The remainder of the LLC’s profits can be distributed as dividends, which are still subject to income tax, but not self-employment tax.

The problem with electing sub-S classification is that there are more rules for sub-S than for an LLC taxed as a partnership or sole proprietor.

For example, every owner of an S corporation must be a natural person (not another LLC, corporation or partnership). If you add partners to your SMLLC, and you wish to allocate profits unevenly between yourselves, then you will lose your S-corp status.

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