Do you know how many quarters you have in the social security system? What would be the level of income you would take if you took a salary or took half of the income?
The SS Statement shows I have worked a total of 11 years, not consecutive. I don't see anything about quarters. Our adjusted gross income was 161,00 last year. We could pay me a salary and make it larger than half to make up for the zero years. Right now we just take owner's draw and pay our taxes out of that.
Your 11 years are sufficient to qualify for ss. You should talk to ss to see what your benefit would be if you paid in at various rates for the remainder of the time you intend to work. You can then determine if you are better off contributing or investing the after tax money. As for the LLC or corporation, the biggest benefit you would get is the limited liabilty it would provide so that all your personal assets are not at risk from the business. You can get the same contribution benefits without forming an LLC or a corporation. If you decide to form a LLC you can operate as a partnership. If you decide to incorporate you can make a subchapter S election and also be taxed as a partnership. In both cases you avoid any double taxation. If this does not answer your question, let me know and I will try to clarify my answer.
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Thank you. You are answering my question, but I am a little confused about the "same contribution benefits". What would the benefits or complications of a corporation be?
When you treat a portion of your income as earned income in a sole proprietorship or a partnership, you pay about 15% of the wages as the contribution to social security. In a corporation, you have about 7.5% taken out of your pay as the employee contribution. The corporation pays the other 7.5% so the total is the same 15%. If you and your husband are the sole shareholders of the corporation you are effectively paying the full 15% the same as would be the case if you were a partner with self employment income. The benefit of the corporation is that if the corporation is sued, only the assets in the corporation are at risk not your individual assets that are not in the corporation such as your home. As a sole proprietorship all your husband's assets are at risk if he is sued for something arising from the business. The only complication of the corporaiton is that you have to make an annual filing at the state level, you have to file a separate tax return for the corporation and at least once a year you have to have a meeting to elect the directors. Frankly, it is not very difficult.
If this answer is responsive to your question, please accept it. That is how we are compensated. It would also be appreciated if you provided feed back on your view of the answer. Finally, if the answer was especially helpful you can provide a bonus. If I can be of further assistance or you have other questions in the future you can ask for me and reach me at this site.
Thank you for all the information. I still need a little more input on corporations vs. LLC. Why would one be a better fit for a small business? I realize much depends on the owners, type of business etc. and that it could be a matter of choice. Does a corporation have to offer shares to the public? If so what does that mean? If we were to add out son to the corporation or an LLC how would that affect the taxes?
The corporation does not have to offer shares to the public. The only shareholders would be you and your husband. If you added your son as a shareholder or member of the LLC, and I assume the corporation was a subchapter S corporation, it would affect the taxes because the profits would be allocated to the shareholders in accordance with their percent ownership. The only way to prevent this is to pay out all the profits in salaries to you and your husband. There really is no difference for you between an LLC and a corporation but the LLC probably involves less formalities than the corporation.
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