Sch C to S-Corp or not

[AZ-Tax]

Single Member Manager LLC (spouse) filed Sch C in 2009 thru 2011 and showed an average net profit of $18K. Was considering suggesting the spouse go the S-Corp route for tax year 2013. Would you suggest a salary be paid to the spouse?

[Brian EA]

In the interest of the tax preparer, it would be a great idea because you can charge an additional $300 for filing the 1120S.
Not a good idea for the tax payer. If however they accept your suggestion, $1000 per month would be a reasonable salary
Brian

[Uncle Sam]

Can I ask you Brian - what's the professional's concern -
what's best for the client, or what's best for the accountant?

AZ hasn't provided sufficient data to provide an entire picture of the situation. So how
can anyone give a responsible reliable answer?

[ChEAr$]

Concur with my esteemed colleague in New York.

What kind of business is it? The nature of the business would be one consideration in setting a reasonable salary in an S corp setting. If not capital intensive then salary might need to approach the 18,000$ already being earned, unless a bit of goodwill could be ascertained.

[Brian EA]

Can I ask you Brian - what's the professional's concern -
what's best for the client, or what's best for the accountant?

That's my question. Why would you want the taxpayer to incur additional expenses when they are making just $18k.

[JoshinNC]

I am very honest with my clients

Can I ask you Brian - what's the professional's concern -
what's best for the client, or what's best for the accountant?

That's my question. Why would you want the taxpayer to incur additional expenses when they are making just $18k.

I sit down with them and explain that if they can't save enough in taxes through the conversion to offset my additional fees ($1000-10,000 per year) from the conversion than they should just remain a SMLLC for the liability protection purposes.

[Uncle Sam]

Sch C to S

Don't you guys get it?

It's not merely the saving of money that's important.
What are the overall economic risks, consequences, liabilities, benefits, that will be changed
in the conversion?

[Nashville]

Tongue in Cheek

Let's give Brian the benefit of the doubt.

I read his message as being a portrayal of the ethical consideration. I did NOT read it with the understanding that he was recommending an S corp so the preparer could soak his client for an extra $300 bucks.

There's not really enough information in the original post to give a good answer, but at the income level involved, I seriously doubt there would be good tax reasons to convert a single-owner to an S corp and then go to the extra headache of having a payroll. Especially if the LLC is already avoiding liability issues for the business.

[DaveO]

If tax savings is the only consideration I usually don't recommend switching to an S Corp below net income of $30k. At that point they can have a $20k salary and $10k pass through for a savings of $1500 which will offset the extra costs of prep and record keeping.

[Burke]

Single Member Manager LLC (spouse) filed Sch C in 2009 thru 2011 and showed an average net profit of $18K. Was considering suggesting the spouse go the S-Corp route for tax year 2013. Would you suggest a salary be paid to the spouse?

Depends on the reasons for converting to SCorp (can't really think of any advantage in this LLC case.) At that net income, social security tax is roughly $2,500 with 1/2 deductible on Form 1040. Sub S will require Form 1120S & corresponding state corp return separate from the 1040, a salary, Form W-2, four quarterly 941 reports with withholding taxes, Form 940 annual FUTA report and tax, SUTA reporting (quarterly) and tax, as well as submitting Forms W-2 to both state and federal (SSA) authorities. All this bookkeeping and forms reporting plus addl taxes surely can't be worth it from a monetary standpoint.

[Matt Sova]

Depends

There is the savings on the SE Tax for the amount of income that is a pass through. There is also the fact that Schedule C's have the highest level of audit risk and S-Corp's one of the lowest.