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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 10810
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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If I'm going to set up my own entity to run an

Customer Question

Hello, If I'm going to set up my own entity to run an alternative health care business out of a small retail space (I am looking now and may choose to rent a space within another alternative health care providers space for a few months and then transition
to my own space), is it best in the state of Florida to set up an LLC or an S Corp?
Submitted: 1 year ago.
Category: Finance
Expert:  Lane replied 1 year ago.
Hi,.The LLC is the fastest growing business enttity out there for several reasons .... (1) Very flexibile (no payroll with quarterly 941's and at least monthly pay-in of FICA and emplyer matching) (2) can set up sharing of profits/losses/capital gains/ capital losses any way you want via the opertaing agreement, (3) has the flexibility of a sole-proprietorship (or partnership if more that 2 owners) BUT sill has the liability protection of the corporation
Expert:  Lane replied 1 year ago.
Most mportant, you can always filr the IRS form 2553 at any time on the future to slect S-Corp taxation or 8832 to elect C-COrp taxation later .. once you kow more about your profits..This gives you options going forward..
Expert:  Lane replied 1 year ago.
The S-coprpbegins to make sense when you become profitble enough (over and above the reasonable salary that IRS requires of S-Corp owners + oher business expenses) that you can save SOME on payroll tax..For the S-Corp, you have to pay both sides of social security and medicare (employee and employer) on that amount that IRS requires as a reasonable salary regardless (which is WHY they requirethat salary) BUT you have hadditional overhead of payroll, W-2's, quarterly 941's, etc. with nothing saved UNTIL, again, you get well OVER that salary and other expenses in profit..THis is becasue that additional amount of profit that comes to you via the 1120-S' K-1 has no SS & Medicare applied to it..But again, itcomes at a price... the headache of the payroll, 941's FICA pay-in etc.
Customer: replied 1 year ago.
What is the "reasonable salary" required by the government for S Corp owners in the state of Florida?Also, I am the owner and will not have any employees for the foreseeable future.
Expert:  Lane replied 1 year ago.
The reasonable salary is a facts and circimstances test ... meaning they will make a determination based on your skiils, what someone of the same skill set makes as an employee, the responsibility you have (as in CEO type of responsibility, shrer your decision drive what happens with the company, etc., etc..But again there is no savings AND extra cost and admionistrative overhead for the S-Corp (CPA's love them becasue they want to do the payroll, 941's, FICA payin, etc., FOR you ... for a price..But until your profitability os well above that salray (plus other expenses) there's no tax saving whatsoever, just dditional administrative overhead and extra risk (payroll tax liability)..Here's an excellent overview of the reasonable salary issue: http://www.journalofaccountancy.com/issues/2012/may/20125234.html.And again, you can file the IR form 2553 (to elect S-Corp taxation for the LLC any time into the future ... http://www.irs.gov/pub/irs-pdf/f2553.pdf.There's just no reason to do it until you get to that point where the self-employment tax savings outweigh the additional payroll tax overhead costs..Also, as you'll see in the article (and many other places is you simply google the phrasae "reasonable salary for S-Corp owners) if you set that salary too low (say 20,000 when a more reasonable number would be 75,000) IRS WILL recharacterize upon audit and then charge taxds pena;ties and interest for what WOULD have been paid if the salary weere at a more reasonable level..And finally, there is legislation in congree right now to take away some of the benfit for payroll tax savings when you are at that say 50,000 EXTRA profit stage..Waiting until you know more about your profitability AND more about how the legislation plays out provides options..... just one man's opinion..Lane.Positive rating appreciated ... (using the stars or smiles on your screen) that's the only way JustAnswer will credit me for the work here..
Expert:  Lane replied 1 year ago.
Hi,.I'm just checking back in to see how things are going ....Did my answer help?.Let me know..Lane.