Single Person LLC

[Taxman]

I have a possible client would set up an LLC about a month ago. I'm curious about the best why to treat the LLC for tax purposes. Should he file as a Schedule C or as an S - Corp? He performs consulting work for the airline industry and there are no employees besides himself. I know he can save on some payroll taxes if he goes the S-Corp route but then he was to file payroll returns every quarter. Any help would be appreciated. Thanks

[KJ Judd]

Taxman -

It would depend on a number of factors. Will income be below the FICA limit so you'd potentially save more on SE tax? Does he have health insurance or health saving account contributions that as an S corp are reported on W-2 Box 1 but not subject to SE tax.

Also, how much will you charge him to file S corp return & payroll taxes versus the savings on above? Any home office issues since can do for Sch C but only 2% AGI itemized for shareholder (or accountable plan)? Any additional state fees for being an S corp?

These are a few of the factors I look at when I make the decision. Hope that helps!

[Matt Sova]

S-Corp

As KJ stated there are a number of factors to look at. The one I look at is the cost of a corp return plus 4 quarterly payroll tax reports and a W-2 at year end vs. the savings of SS/Medicare tax on a reduced wage compared to SE tax on the entire amount.

The HI is a moot point as long as the SS wages are greater than the HI paid. The Home Office deduction is minimal and we still do a direct reimbursement for the S-Corps share of expenses to the owner.

Matt

Forgot to add that with Rev Proc 2003-43 you could wait until December 2006 and take a look at their situation. If necessary file the 2553 pursuant to this Rev Proc and elect S status all the way back to the beginning. Then take a wage in Dec and pay the payroll taxes on it.