Hi and welcome to Just Answer!
Whatever you were told is correct - however that is not a matter of structuring the payroll...
A Limited Liability Company (LLC) is a business structure allowed by state statute. LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Most states also permit "single member" LLCs, those having only one owner.
The federal government does not recognize an LLC as a classification for federal tax purposes. An LLC business entity must file a corporation, partnership or sole proprietorship tax return.
See for reference - http://www.irs.gov/businesses/small/article/0,,id=158625,00.html
A single member LLC (SMLLC) can be either a corporation or a single member "disregarded entity". Again, to be treated under federal law as a corporation, the SMLLC has to file Form 8832 and elect to be classified as a corporation. An SMLLC that does not elect to be a corporation will be classified by the existing federal guidance as a "disregarded entity" which is taxed as a sole proprietor for income tax purposes.
Assuming your LLC is disregarded entity - you should not pay wages to yourself - instead all income will be treated as your self-employment
income - you will calculate your net self-employment income - and that amount will be subject of both - income and self-employment taxes.
However... See for reference - http://www.irs.gov/businesses/small/article/0,,id=158625,00.htmlIf the LLC does not make a classification election, a default classification of disregarded entity (single-member LLC) or partnership (multi-member LLC) will apply. The election referred to is made using the Form 8832, Entity Classification Election - http://www.irs.gov/pub/irs-pdf/f8832.pdf .
Thus you may choose the LLC to be treated as S-corporation.
If you choose S-corporation tax treatment for your LLC - you will be an employee of that S-corporation - and will receive wages as all other employees.
S-corporation does file an income tax return. Wages paid to the owner are normally deducted as business expenses. However if S-corporation has income after all deductions - it doesn't pay taxes - the income is passed to shareholders (to you in case of single owner) - means shareholders will report that income of individual tax returns - regardless if that income distributed or kept within S-corporation.
That passed through income is not subject of employment or self-employment taxes - so there will be potential saving.
However - as long as the business is not profitable or the profit is really small - I would not recommend to use S-corporation. The reason for that - you will have additional overhead but without relatively large profit - there will not be any tax savings.
You may choose S-corporation treatment later - when the business will make an annual profit at least $40,000.
- there will not be any difference for employment taxes paid to other employees.
- with S-corporation - you might have tax saving on your own income - but only if that is a substantial income (I assume above $40,000)
- there would be additional income tax return for the S-corporation.
Let me know if you need any help.
Be sure to ask if any clarification needed.