I have a sole prop that I converted to LLC and plan on filing taxes as an S-Corp. I registered through LegalZoom and got a free tax consultation with Corporate Tax Network.. I am not able to find any info on them but it does look like they will be able to advise me quite well on structuring the company and setting up accounts, payroll for myself, etc... I am only employee but I do hire freelance contractors. The fees for their services are $1500 up front and $20.00 per month with unlimited accountant calls and then $1050 per year for payroll to pay myself. Are these prices about average for tax accounting/payroll? Also - with $60000 revenue and about $20000 in contractor expenses and another $10-15000 in deductions does it make sense to file as an s-corp? I do not have any bookkeeping up until now... I am going to have to put together for some loose books for the 9 moonths leading up until now. There are a few questions here I know... bear with me I appreciate any help I can get.
State/Country relating to question: New Hampshire
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ok....your question is should you change your Sole Proprietorship into an S Corp, correct?
no - I have already converted my sole prop into an LLC
my understanding is that I can still file taxes as an s-corp
LLC is not entity specific. LLC's can be Sole Propretorships, C Corp, or S Corp. Partnerships are generally designated as LLP, though not always
When you converted to an LLC, did you receive any type of paper work stating what tax form you should now file
Let me have a look
It looks like I still have the opportunity to file Form 8832 Entity Classification Election
Bear with me a second
a little more background is that I am a w-2 software developer making 100,000 per year - and then the business is generating another 50-60k revenue with 20-30k in expenses including all contractor work
if it helps
Ok , Form 8832 does allow you to choose which entity you would like to set your self up as, but if you want to be an S Corp,then you must first set yourself as a C Corporation, and then you MUST file Form 2553 (Rev December 2007) in order to change the C Corp to an S Corp
This is a 2 step process
Okay that is good to know.
Now the real question that I have is... does that make sense tax-wise or am I better off with sole proprietorship? Is there a self-employment tax that I get hit with in a sole proprietorship?
or is it essentially ordinary income
As the sole owner of the S Corp, IRS regs state that you MUST report your personal income from the S Corp on a W2. This means that you will be responsible for all payroll taxes connected to your wages
Most people set up entities such as S Corp, C Corp, etc in order to place a barrier between their business assets and their personal asset should they ever be sued.
So there's more to consider here than just taxes.
okay that is definitely a large reason why I converted to LLC in the first place
how much is payroll tax typically?
sounds like I'm getting double taxed just for the protection of assets when really the sole proprietorship LLC offers me that protection
There's FUTA tax (Federal Unemployment tax) which is 0.54% Medicare is 2.9% and although the Social Security is around 15%, only half will be withheld on the W2, but as the sole owner, you will still be responsible for the other half, just as any other employer
Its true that the payroll taxes are certainly more than the normal SE
My husband had an S Corp
but he had assets that he really wanted to protect
So it really depends on what you're looking for
I've hit you with alot of information I know
no this is terrific
will this offer me the benefit of laying myself off if I fall on hard times by the way?
GREAT QUESTION! Unfortunately, the answer is no (I've been around this block before) and here's why:
Since you are you own employer, then whether or not you work is up to you. (Although I agree that if you're paying for it, you should be entitled to the benefits....but the boys on Capital Hill never call m for my opinoin
okay good to know
so it seems that these taxes are really only about 3% higher than self-employment tax and offer a clear distinction of where assets lay for both asset liability and tax shelter :)
I did have a client who challenged having to pay a tax that he would never benefit from, and he managed to win that argument
That was more than 10 years ago, when we supposedly had a "kinder an gentler" IRS
okay good to know I probably wouldn't fight that as it seems like small percentage
anyway this is super helpful I very much appreciate your time and insight
I will request you when I have more questions which I'm sure I will
thank you again
I've only given you the Federal taxes. If New Hampshire has an income tax, then there will be payroll taxes there too
there is no state income tax in NH
ok..I live in MI where there is, wasn't sure about New Hampshire
Yes, please feel free to ask for me, I'm happy to help you
would the business have to pay any state taxes for revenue?
they make all their money from property and excise tax in this state I think
If that's the case, then I wouldn't think so. You might want to check with the taxing authorities there. Normally if there's no state income tax, then that also applies to business, but please don't quote me
okay that sounds like it makes sense
thanks again for your time and you have a great night!
I will follow up with that one
Thank you, you too
Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses