Tax structure for LLC. Schedule C (sole proprietor) or S-Corp

thrashattack

New Member
This topic is pretty foreign to me so I appreciate any guidance in this situation. I have an LLC and am fully licensed and insured but haven't been very active with it. Mostly just a few residential side jobs a month. I recently have been presented with the opportunity to get into the world of commercial work. I therefore need to take the next step and get a business bank account and EIN. I met with a tax service and was advised to structure my LLC taxes with either a Schedule C (sole proprietor) or S-corp for my situation. I anticipate my gross annual income will still be under six figures. With all that into consideration, would you recommend a Schedule C or S-corp?
 

OasisTree

Active Member
All depends on what your net profit is at the end of the year, and whether you want to be an owner operator or an employee of the business. There are lots of ways to structure it, and the S corp is much more involving and costly when you get your taxes done. But on the other hand, an S corp structured business doesnt pay social security tax on the profit above what your salary is, which can be a substantial savings. I agree with the above advice to consult a good tax professional. From what i have seen, it doesnt pay in the long run to cheap out on tax preparers.

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ROYCE

Well-Known Member
@OasisTree is correct on those statements. This is one of those things where you have to decide what you want from the business. Also, you have to try and project what you think your earning will be in about 5 years or so. I am an s-corp. Mainly because it allows me to remove money from the business without paying payroll tax. This is nice because it saves the business money. I still have to pay a tax on the money and depending how much comes out the rate gets higher the more I take out.
If your not planning on having profits in the 50-100K range at the end of the year then I am not sure an s-corp is a good fit for you. But I know very little compared to an accountant. Talk with them!!
 

ROYCE

Well-Known Member
Royce, what do you mean by having 50-100k at years end? Biz profit?
Yes, business profit is what I am referring too. If your not anticipating having a large amount of profit that you have to move off your books then maybe an s-corp is not a great choice. I do not know all the ins and outs of the other perks of different classifications and set-ups. I just know that the s-corp has worked well for me in regards to keeping my payroll tax down. Also, it could benefit me in the long run if I hire a good guy and want to make him a partner. He would own say 20-30% of the business. At years end I could pay him a % of the profit of the business with out paying payroll tax.
Imagine if myself and a high paid foreman each made a combined income of 225,000. If you run that through your payroll then your paying very high payroll tax on all that money. If you take a combined salary throughout the year of say 150K (which gets run through payroll) and then pay a bonus at years end of 75K combined, then your still making the same amount of money, but the business has not paid the tax on that 75K. We will have to pay income tax on it, but it still would be best this way. I hope this makes sense.
This is the way it was described to me when I formed my business.
 

LimbLoppa

Well-Known Member
Soooooo Royce........when are you gonna schedule that seminar on the proper way to set up your tree business for success? I friggin love this forum! So much helpful information!
 
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