|
Posted by kyle on February 19, 2007, 2:20 pm
Please log in for more thread options
I am trying to get everything in order for planning my tax
strategy for this year, and wanted to double check
something...
Last year I made 165K, and my MAGI was around 120K. I work
as a contract consultant, so obviously the SE tax was a
bitch. I am a sole proprietor, mostly because I do not
need the liability shield, so doing LLC offers little
advantage from a tax perspective. Now I also considered
doing subchapter S, but at the time (a few years ago), it
did not seem to offer that much benefit either. My logic
was that the "reasonable salary" that I pay myself would
most likely have to be over the cap on the SS portion of SE
taxes. Thus, my tax savings would only be around 2.9% (even
less when you factor in the deduction of 1/2 SE tax). At
that time, it seemed like a lot of paperwork to go through
to get that few %.
Is my logic flawed?
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
|
|
Posted by Paul Thomas, CPA on February 19, 2007, 8:46 pm
Please log in for more thread options
> I am trying to get everything in order for planning my tax
> strategy for this year, and wanted to double check
> something...
>
> Last year I made 165K, and my MAGI was around 120K. I work
> as a contract consultant, so obviously the SE tax was a
> bitch. I am a sole proprietor, mostly because I do not
> need the liability shield, so doing LLC offers little
> advantage from a tax perspective.
Seeing that the default for a single member LLC is a
Schedule C anyway.
> Now I also considered doing subchapter S, but at the
> time (a few years ago), it did not seem to offer that
> much benefit either. My logic was that the "reasonable
> salary" that I pay myself would most likely have to be
> over the cap on the SS portion of SE taxes. Thus, my
> tax savings would only be around 2.9% (even less when
> you factor in the deduction of 1/2 SE tax). At that time,
> it seemed like a lot of paperwork to go through
> to get that few %.
>
> Is my logic flawed?
Depending on the state fees and such, you are correct. The
costs would include state filing and any annual fees, the
costs to maintain payroll services (forms preparation and
filing), a corporate return to prepare and file, just to
name a few. The costs could easily exceed the tax savings.
There may be, however, non-tax reasons to form a
corporation, and you may want to at least keep it in mind
down the road.
--
Paul Thomas, CPA
paulthomascpapc@bellsouth.net
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
|
|
Posted by Harlan Lunsford on February 19, 2007, 8:46 pm
Please log in for more thread options kyle@kylebeck.com wrote:
> I am trying to get everything in order for planning my tax
> strategy for this year, and wanted to double check
> something...
>
> Last year I made 165K, and my MAGI was around 120K. I work
> as a contract consultant, so obviously the SE tax was a
> bitch. I am a sole proprietor, mostly because I do not
> need the liability shield, so doing LLC offers little
> advantage from a tax perspective. Now I also considered
> doing subchapter S, but at the time (a few years ago), it
> did not seem to offer that much benefit either. My logic
> was that the "reasonable salary" that I pay myself would
> most likely have to be over the cap on the SS portion of SE
> taxes. Thus, my tax savings would only be around 2.9% (even
> less when you factor in the deduction of 1/2 SE tax). At
> that time, it seemed like a lot of paperwork to go through
> to get that few %.
>
> Is my logic flawed?
Nope, you're right on target. The extra costs of operating
as a corporation would probably negate any tax savings of
the 2.9%.
HOWEVER; you might still consider the LLC route because your
default tax treatment is still schedule c with which you're
already familiar.
In fact you MAY, I say MAY, be able to "do it yourself" on
the web. Check your state's secretary of state web site.
Remember though, that what I say here is no substitute for
adequate legal counsel which would charge you at least 800$
(in these parts) for the LLC formation.
ChEAr$,
Harlan Lunsford, EA n LA
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
|
|
Posted by Tony Cox on February 20, 2007, 6:57 pm
Please log in for more thread options
> I am trying to get everything in order for planning my tax
> strategy for this year, and wanted to double check
> something...
>
> Last year I made 165K, and my MAGI was around 120K. I work
> as a contract consultant, so obviously the SE tax was a
> bitch. I am a sole proprietor, mostly because I do not
> need the liability shield, so doing LLC offers little
> advantage from a tax perspective. Now I also considered
> doing subchapter S, but at the time (a few years ago), it
> did not seem to offer that much benefit either. My logic
> was that the "reasonable salary" that I pay myself would
> most likely have to be over the cap on the SS portion of SE
> taxes. Thus, my tax savings would only be around 2.9% (even
> less when you factor in the deduction of 1/2 SE tax). At
> that time, it seemed like a lot of paperwork to go through
> to get that few %.
>
> Is my logic flawed?
Probably not. As a "consultant", any entity that's taxed
like a C-corporation makes little sense. So it's S-corp or
sole proprietor. Liability shielding with a corp should be
compared with the simpler mechanism of insurance.
Non tax reasons ought to point the way. Clients are often
reluctant to engage sole proprietors because of potential
employee vs. contractor issues. If that is not a factor,
then why bother with even a subchapter S?
This perception changes if you're not really a "consultant"
but actually a contractor that isn't involved in business
that might identify you as a "qualified personal service
corporation", if you plan to employ people, if you want to
retain earnings from one year to another for some reasonable
business purpose, or simply if you anticipate wildly varying
income from one year to the next.
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
|
| Similar Threads | Posted | | strategy for Roth conversion | January 16, 2007, 7:40 pm |
| Overpaid state witholding -- strategy? | December 30, 2006, 2:48 pm |
| Tax Strategy For 2008-2010 Capital Gain | September 8, 2008, 2:43 pm |
| Do I deduct my 4th estimated tax payment for 2006, made in Jan 2007 on 2007 schedule A line 5? | January 18, 2008, 7:33 pm |
| 2007 IRS Tax Forums | April 3, 2007, 6:44 pm |
| CCH TAX NEWS for May 1, 2007 | May 2, 2007, 11:58 am |
| CCH TAX NEWS for May 2, 2007 | May 2, 2007, 11:58 am |
| CCH TAX NEWS for May 3, 2007 | May 5, 2007, 6:17 am |
| CCH TAX NEWS for May 7, 2007 | May 7, 2007, 1:14 pm |
| CCH TAX NEWS for May 8, 2007 | May 9, 2007, 3:54 pm |
|
|
Yahoo! 
Google 
Windows Live 
del.icio.us 
digg 
Netscape 
XML Sitemap