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JBE, CPA
JBE, CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 137
Experience:  25 Years Experience
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Forming and LLC or Corp. for specific tax advantage

Customer Question

In early 2005 I will be receiving a large sum of money as a consultants fee from my boss who is closing on a deal in a few weeks. He usually 1099’s me for these types of situations at the end of the year. Instead of having him pay me directly and in an effort to avoid giving up a large chunck of it to uncle Sam does it make any sense to do the following: Form an LLC. or Corp. and have my boss pay that entity instead of me? The thinking behind it is that entity could start a Keogh plan or the like, my wife and I could become employees of the entity and I believe can contribute up to $40,000 each into the plan thus avoiding tax on $80,000 - Does this make any sense?
Submitted: 11 years ago.
Category: Tax
Expert:  JBE, CPA replied 11 years ago.
You may contribute the lesser of 25% of compensation or a maximum of $41,000. Therefore you would have to pay yourself and your spouse a salary of at least $205,000 each to qualify.

There are a lot of issues to explore to accomplish any tax savings that you are considering.

For example, you might be able to save some Social Security taxes, possibly by using a Sub Chapter S corporation but you will also have to consider the cost and expense of establishing and maintaning such an entity.

JBE, CPA
JBE, CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 137
Experience: 25 Years Experience
JBE, CPA and 3 other Tax Specialists are ready to help you

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