tax credits

[Bjorn]

Aloha,

I've got a green house operator looking to lower her tax bill due uncle sam.
Are there any special credits out there for her industry?

She needs equipment anyway so I'll suggest she buy necessary equipment and take some section 179 to lower her bill.

Maybe next year she should be an S-corp to reduce her social security tax. It is as easy as taking a reasonable salary on the w2 and the rest comes without SE tax. What are the draw backs to the S-corp.

Why does every lawyer do an LLC when I think the S-corp is better from the tax side.

Mahaola

Bjorn

[Armando Beaujolais]

Aloha,

I've got a green house operator looking to lower her tax bill due uncle sam.
Are there any special credits out there for her industry?

She needs equipment anyway so I'll suggest she buy necessary equipment and take some section 179 to lower her bill.

Maybe next year she should be an S-corp to reduce her social security tax. It is as easy as taking a reasonable salary on the w2 and the rest comes without SE tax. What are the draw backs to the S-corp.

Why does every lawyer do an LLC when I think the S-corp is better from the tax side.

Mahaola

Bjorn

There's a list of credits with summaries on page 11-2 of TTB.

LLC's are real popular because they combine the liability protection of a corporation with the flexibility of a partnership. For example, you can do special allocations with a partnership. If you do that in an S corporation, you violate the one-class-of-stock rule.

Many if not most will disagree that an S corp is better from the tax side. Guaranteed payments are subject to SE tax with both a partnership and an LLC. Distributive share for a general partner is also subject to SE. However, even though there's some controversy surrounding the issue, most LLC members are not reporting distributive share of income as subject to SE, no matter their level of ownership or activity. In other words, from a standpoint of taxation of earned income and SE tax, most LLC's are treated the same as S corporations.

What the S corp shareholder takes out in wages is taken as guaranteed payments by LLC members. Follow reasonable comp principles.

There's info about SE tax for LLC's on page 5-25 of TTB.