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Posted by Paul Thomas, CPA on March 16, 2007, 10:16 pm
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> Once upon a time a friend and I formed a sub S corporation
> for software development. The thinking behind the sub S was
> liability protection with minimal taxes. Unfortunately,
> choosing to do my taxes myself rather than use a CPA got me
> in trouble because I didn't declare distributions as wages.
You don't declare distributions as wages. You declare wages
as wages.
Some of - in fact, most of - what you take from the "S"
corporation should be in the form of wages.
Other distributions can be in the form of profit
distributions.
> The corporation was dissolved and all tax issues addressed.
> My partner called today and told me that someone he met is
> interested in purchasing a license for a software package I
> wrote (30K+, depending on options and customization) so we
> may need to form a new company to start marketing and
> supporting this. I still need liability protection but would
> like to minimize taxes. Does a partnership or LLC have to
> match SS withholding?
Nope, in fact they can't.
Your profits from an LLC and/or partnership are taxed for
regular income tax, as well as self-employment taxes (Social
Security and Medicare), and that's all on your dime.
> Is there any way to do this so that
> the extent of the taxes we'll pay will be the same as if we
> were each W-2'ed for half the net income?
Not really.
The two of you need to seek legal as well as tax advice on
these topics.
--
Paul Thomas, CPA
paulthomascpapc@bellsouth.net
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