 Choosing
an LLC or S corporation
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 Dear
Tax Talk,
One of the advantages of an S corporation is
that you can pay yourself a reasonable salary and pay your remaining
income as dividends, which are taxed at a lower rate. Is this also
true for an LLC? Thanks. -- Scott
 Dear
Scott,
If you want to save on employment taxes, you better stick to an
S corporation. An LLC is a limited liability company that shelters
its owners from certain debts of the organization.
But so does an S Corporation. A lot of attorneys seem
to recommend LLCs lately, but it has nary any advantages over an
S corporation and subjects the owners to higher employment taxes.
Like you said, an S corporation can pay a reasonable
salary to its owner and the remainder can be paid as dividend or,
more importantly, accumulated for business expansion.
Neither the dividends nor the accumulated earnings
are subject to employment tax.
In an LLC, the active members are
subject to self-employment tax on their net share of the profits,
whether or not the profits are paid to the owners. This means that
the members of an LLC that uses $100,000 in profits to buy equipment
will pay self-employment tax at 15.3 percent on profits that were
retained.
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the Experts" page, and select "taxes" as the topic.
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