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RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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I have an LLC in Texas now. Last year I paid tax on total

Resolved Question:

I have an LLC in Texas now. Last year I paid tax on total profit of the LLC and self employment tax because I was not withholding a salary. My accountant suggested I form an S Corp with subchapter C and withhold a salary. That way I could reduce the amount of reportable tax income. It has been a while and I'm not sure I'm remembering what he said correctly.

Questions:

1. Do I just withhold just like I would for my hourly Secretary? (Quickbooks withholding account?)
2. Is the Subchapter C correct? Can I do this with my LLC now?
3. Is a larger salary better than a lower salary as far as reducing tax liability?

I know I have waited too long. Better now than not at all.

Thank you so much!
Submitted: 4 years ago.
Category: Tax
Expert:  RD replied 4 years ago.
Chat Conversation Started
RD :

You can elect S Corp status for your LLC.

RD :

If the corporation wants to be treated as an S Corp for the current taxable year,
than it must make its S election within the first two and one-half months of the
corporation s taxable year, or, at any time during the preceding taxable year.
If the S election is made after the first two and one-half months of a corporation s
taxable year, then that corporation will not be treated as an S corporation until
the next taxable year.

RD :

So you cannot file for S election for the year 2010 but you can file the election for the tax year beginning 2011 by filing FOrm 2553

RD :

Yes, you will run the payroll for you in a similar way as you do it for your other employee(secretary)

RD :

Considering the hours you work and your experience and qualification, you need to take reasonable compensation.

Customer :

Filing form 2553 will do it without any other action with the State of Texas?

Customer :

What can I do to minimize tax liability this year given that I cannot file for S election? Should I still withhold, or am I totally stuck paying same self employment and profit on the corp?

RD :

You can file for S election requesting relief under Rev Proc 2004-48 by filing Form 2553 and a reasonable cause for late filing. It is quite possible that you can have the S election in effect for the current year if the IRS accepts it.

RD :

YOu do not have to take with State of Texas.

Customer :

Great answers. Last question: Do you have a link to any information that would help me reduce tax liability if they don't accept? Thank you for your thorough answers.

RD :

If they do not accept the election than you will be filing as a sole proprietor on Sch C and will pay self employment tax on the net income.

RD :

Few suggestions to reduce your income would be to

RD :

if you are a cash basis tax payer- defer some of the receipts or pay off the expenses before the end of the year

RD :

buy assets/equipments that you need for business and write off under section 179 expense

RD :

claim business related miles driven at standard mileage rate

RD :

If you are carrying on this business from home than claim some of the related home office business expenses

RD :

Link to the Rev Ruling for late election

RD :

http://www.irs.gov/irb/2004-32_IRB/ar18.html

Customer :

Exactly what I thought. THANK YOU for your great answers. You are a real pro. I'll ask you again. Walker Price

RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
RD and 3 other Tax Specialists are ready to help you

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RD
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CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..