For many years, I’ve had a side tax practice, mainly just 1040s. I ran it through a single member LLC. In the past, I’ve had a Corp America job. Now, in 2014, I took an exit package and have obtained a favorable consulting assignment which I was going to run through my SMLLC. However, I going to get nailed on SE tax. My thought is that I’d make the S-Corp election, pay a reasonable wage, etc. However, unless I’m missing something, I know there are late S-Corp alternatives but in my case I don’t think it would work. Is it best to start a new entity, make a timely election and go from there? Thanks in advance for assisting me with my minimal entity formation knowledge.
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"The hardest thing in the world to understand is the income tax" - Albert Einstein -
Is your consulting work related to your tax practice? Not withstanding any "all lawful activities" phrasing in your organizational papers, it may not be a good idea to mix two distinct businesses.
As for whether or not it will work at all, I'm sure you can find a variety of opinions on the extent to which a business that is ultimately one person providing services can treat some of the profit as not subject to SE tax. -
Like Gary said, unless it is related to your current business you do need to open another one.
I also have a side business in website design. I use to include this with my tax/accounting biz because I provide "business services" and my thought the design could be included in that. As my tax business grew it just made no sense to keep it all together. So I created another LLC and I am glad I did.Comment
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SE Conclusion / One open question
Thanks for the feedback. I guess I have one conclusion and one question still.
The conclusion is to proceed with caution (or not at all) in electing S-Corp status for a SMLLC providing professional services. I like to sleep at night and know that the IRS won't come back and challenge me as an S-Corp providing a salary and the rest as a dividend. If I'm being overly cautious here, let me know.
The remaining question is that I don't see the big issue with combining multiple services into a single LLC - i.e. tax prep and financial reporting consulting. I'm all for simplicity rather than multiple entities. I have the services lines appropriate tracked and detailed in my QuickBooks. Let me know if I off track here.
As always, much thanks for the open and direct feedback."The hardest thing in the world to understand is the income tax" - Albert EinsteinComment
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OK I think
Bbrown, I think with thumbs up on the S-corp with a "reasonable" salary (whatever that is). If it is reasonable to you, it probably will escape scrutiny unless it is ridiculously low.
Also, I will break with the crowd and agree that your activities are closely enough related that one entitity should suffice.Comment
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