|
I'm applying for an EIN via the IRS's site. I'm currently the only member of the LLC. The application classifies my LLC as a "disregarded entity" for federal tax purposes, and explains I should report earnings on my individual Form 1040. The options are to either accept the "disregarded entity" classification, or file a Form 8832 to elect corporate status. I've gone the sole proprietor route before I had an LLC... Which choice will be most cost effective for tax purposes? |
|
That question depends on many things. But since you are asking here, then I would suggest staying with sole proprietor. A Corporation has many advantages, but the cost to hire an accountant to assist you with those and do the tax returns associated with them are too complex to answer here. File and take the default and if in the future you see that you can benefit from the savings and continuity of a corporation (hopefully S corporation) then you can always make that election later :) |
|
There are lots of pros and cons, some dictated by state law. I don't know that we know enough about the situation or the location to make an informed decision. |
|
If you expect to be profitable you may save taxes by incorporating (becoming an S-Corp). You'll have to file form 2553 Election for S Corporation to become one. Net profit from S-Corporation is not subject to Self Employment tax. This is not the case with filing as a Sole Proprietor (Schedule C). However, as an S-Corp You will need to pay yourself payroll and pay reasonable salary". You will also need to file a separate return for the corporation. The cost of processing and filing payroll returns, hiring an accountant to prepare the S-Corp return may or may not eat your total tax savings. The best thing to do is talk to a tax professional who can make an assessment for you and who will tell you upfront how much they will charge you. |
|
I don't really come in 100% with Sandy. An LLC in an S-corp may be perfect for you, but there is no way we can tell without knowing a LOT more about you. See your tax professional (or if you don't have one, find one) and see where you are better suited. Helen, EA in PA Sorry Helen; He was previously a sole prop....so to be S-status just because is now an LLC to protect his personal liability? Who knows? S corp returns cost $$ and of course then we have payroll returns, etc. Could be an LLC taxed as sole prop is better for the client. What do people charge for an S-return? Then state? Sometimes the LLC is preferable; if the fees are higher than the benefits, then just let them go on as is :)
(27 Apr '10, 22:31)
SandySea
I'm an S LLC and I like it because I take a paycheck and don't have to worry about my profits, as long as I take a reasonable salary. The charge to do the return is about the last thing I look at when I advise a client, that is just a gnat in the ointment, the client has to make the decision.
(28 Apr '10, 00:11)
Helen EA in PA
I agree Helen, but of course you are an accoutant/EA.......what for the client who was a sole prop and should they make an election to be a corp? sure tax savings, but if you have to hire a pro for the tax savings, may be not worthwhile or could cost more
(28 Apr '10, 21:46)
SandySea
Helen, you take a paycheck and don't have to worry about your profits -- but you do need to worry about payroll taxes, unemployment insurance, state filings. You may do a lot of that for yourself, so there's no real cost to you, but the additional costs (and time) can be burdensome to a small client.
(30 Apr '10, 13:58)
Tom
|
|
I don't know what is important applying for that but I think the best option all of us can get is applying for getting Generic Viagra for free, imagine the hours of sensations we could get. |
