There are some things that, as per IRS rues, an S-corp can't do (you'll find this in the instructions for form 2553 S-Corp election)
SO, the BASIC answer just from a legal perspective is that it's actually a prohibited ownership
The Company I am buying 10% ownership into is an LLC only
And that, from a tax standpoint, may not matter, anyway
as your s-corp is a passthrough (everything flows to your personal 1040 as you know)
So, I should pay for the 10% ownership of the Company through me personally, not through my company.
Only C-corps and IRRevocable trusts have their own tax rates and brackets, and therefore pay taxes at a differential to their owners
then I will just receive a K-1
S-corps, (through that K-1), partnerships, LLCs that aren't s-corp elected and Sole proprietorships ... there's not tax differential... it's you
THe LLC membership will give you the same asset protection from liabilities, debts lawsuits, etc as the s-corp does
so, since both are passthroughs ... it all ends up on the 1040
I guess I was hoping I could run everything through my company & take advantage of not paying self employment tax
Hte only difference at all (and it may be negligible) ... beat me to it
depending on the number that IS the only difference
since it's an LLC, you CAN do it
Give me a Summary. How should I go about paying for the 10% ownership in your opinion
Thats a financial question .... IF you think it's a sure thing and you can get favorable financing, you're real return WILL always be maximized
but y the amse token ... if it loses money, the leverage maximizes the loss
The part that saves you the SE tax is having the S-corp being a 10$ member in the LLC (thats a titling issue)
but since everything flows through to you which every way gives you the best interest rate (having the S-corp take out a loan or taking it out personally) is what will make the difference in your net return ... it all flows to yur botXXXXX XXXXXne
sorry to keep this lingering on. Which ever way I go, owning this 10% of the company personally, with personal funds. Or running it through my business
(sorry for the typos) If I invest $1000 and make $10 I make 10$ ... If i invest 100 of loaned money (given that I have to subtract out a little interest cost) my real return is MUCH higher ... (and my loss could be greater) that what leverage does
will not make a difference from a tax standpoint
Yes, you'll just have the llc sell a 10% to either you OR the S-corp
that's right OTHER than saving some on SELF employment tax .... that extra cash flow that comes in from the LLC will reasonable be all dividend
if nyou inveswt personally, it's self employment income ... the questions is, how much does than really save you
that is the question. But I still have to pay myself a reasonable salary with the s-corp election.
Right, but that salary's already there ... and when your s-corp makes other investments, especially if you don't have management responsibilities there... that's all just investment income (no reason to raise you salary)
It appears I will put the 10% ownership under me personally, outside my company?
I think the opposite....
If the S- corp makes an invest in the c-corp ... then
the extra money that flows through to you as an owner of the S-corp is dividend
sorry ... S-Corp invests in LLC
that doesn't require that you raise your salary - which would require more SS (both side owner and employee) it is just extra investment income flowing into the s-corp and to you as dividends
so SE tax on dividends
If you become a 10% member in the LLC, that's all self employment income off the K-1
I run QB now. How will the IRS view the Distribution from the investment & not see it as company growth?
your s-corp have made an investment in another company
so I will have to make a new list in the chart of accounts as "Investment Income"?
question: Is there ny expectation of you in being this member or is it all just pure investment
any responsibilities in the LLC?
Purely a silent Partner, No managing responsibilities. & how do I Get the Money out of QB?
as for as what Account for the Investment
think of it this way ... If your s-corp went out and bought a bond that paid 4% interest, that's just extra income to the company... investment income
there's will be an asset ("ownership interest in XYZ")
and there will either be OE or ,liability to fund it... and then there will be inestment income9 an income statement acc**t)
Summary time: It will be favorable for me to purchase the 10% of the LLC through my company & run everything through that.
I will receive the distributions quarterly an set up an investment income account
Pro - saving on some amount of self employment tax Con - maybe a little more bookkeeping
Become a member of the LLC Pro - maybe less paperwork, Con - pay self employment tax on that share of income
got it thank you so much
SUre -- good luck with it ... a little legal advice? you might want to ask them about the operating agreement, how you/s-corp will be treated upon dissolution, any voting rights? etc LLCs are very open-ended and need to be as specific as possible in the operating agreement
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