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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
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Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I currently have a doctors office with chiropractic and naturopathic

Resolved Question:

I currently have a doctors office with chiropractic and naturopathic doctors, that is an LLC. For other legal reasons I am going to dissolve the LLC and form two new businesses.

One will be the naturopathic business owned by the naturopathic doctor, and the higher grossing of the two, grossing $500,000 annually. The second will be the chiropractic business, owned by me, and grossing only $50-70.000.

I have more familiarity with LLC's, but am considering an S Corp for the smaller grossing chiropractic company. I am considering a C Corp for the higher grossing naturopatic company. I need some help with the advantages / disadvantages of the corps over an LLC.

1. Does the S corp file a return like an LLC does?

2. The profit of the S Corp is passed on the owner/shareholder (me), same as with an LLC?

3. Is the profit of the S Corp that gets passed to the owner considered dividends and not subject to FICA/FUTA tax? The profit of the LLC that is passed to the owner is not exempt for FICA/FUTA?

4. Do S Corps and LLC have similar business deduction ability?

5. How would you characterize the advantages / disadvantages of the S Corp over the LLC for the lower grossing company"

6. For the higher grossing company I am considering a C corp. I understand that the C corp has double taxation. The C Corp pays tax on their net income / profit. The owner/shareholder pays tax on any income received from the C Corp. Is this the double taxation?

7. The C Corp has the advantage of income shifting. The taxes the C corp pays on its net income are not subject to FICA/FUTA? The salary to the owner/Shareholder is subject to FICA/FUTA. Is this how the combined taxes of the C Corp and the owner/shareholder may be less than the taxes paid by the member of an LLC that has the profit passed to them and pays FICA/FUTA on all of the income?

8. Is the ability to deduct business expenses greater, more extensive for a C Corp than an LLC?

9. How would you characterize the advantages / disadvantages of a C Corp vs an LLC for the higher grossing company?
Submitted: 1 year ago.
Category: Tax
Expert:  Megan C replied 1 year ago.

Megan C :

Hello! I am a CPA here to assist you with your tax questions. My goal is to provide you with excellent service today.

Megan C :

How are you today?

Megan C :

1) Yes, an S Corp files its own return. It files form 1120-S. This is a corporate tax return, but shifts the tax to the shareholders.

Megan C :

2) Yes, the profits of the S Corp are shifted to the shareholder/owner - similar to an LLC

Megan C :

3) With the profits you have to pay yourself a "reasonable" salary. The rule of thumb is that 60% of your earnings are wages and 40% are dividends. Therefore, you're only paying employment taxes on the 60% that is considered earnings.

Megan C :

In the LLC, ALL of the profits are subject to employment taxes.

Megan C :

4. S corps have all the same business deduction availability as any other business format

Megan C :

5) The advantages of the S corp is that not all of your earnings is subject to employment taxes

Megan C :

6) You are exactly right about the double taxation of a C Corp. The C Corp pays income tax on the earnings, then the owner pays tax again on dividends. One way to side-step this is to have salary from the C Corp (which you will pay employment taxes on) but on the salary received, the corp doesn't pay income tax on that because they deduct the wages.

Megan C :

7) Any net earnings of a C Corp are not subject to employment taxes. Only designated salaries given by the C Corp are subject to employment taxes

Megan C :

8) The deduction availability for C Corp and LLC are very similar. You can deduct any ordinary and necessary expense for both LLC and C Corp

Megan C :

9) For the higher grossing company, the C corp advantages will be that employment taxes would not be levied on the profits. You can shift some of the earnings to the owner through wages, which are fully deductible to the corporation

Customer:

with regard to your answer to #3, do the 60% wages taken weekly / monthly have to have the employment taxes deducted with each payment, like the employees / staff, or does the owner just pay quarterly estimated taxes? When can the dividends be taken by the shareholder/owner, only taken at the end of the year or more frequently?

Megan C :

Whenever the owner is paid the wage, you would withhold the tax because you will file the same employment tax returns (940, 941 etc)

Megan C :

The owner can take the dividends whenever they want throughout the year.

Customer:

Are life ins premiums paid by the company, with the owner the insured but the company the owner of the policy and the beneficiary, a business expense or are they considered wages or dividens.

Megan C :

Life insurance premiums are considered wages, but are fully deductible to the corp

Customer:

thank you for your excellent help

Megan C :

You're welcome. If you would, please take a moment to rate my response as "Excellent' so that I may receive credit for assisting you today

Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 15587
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and 10 other Tax Specialists are ready to help you
Expert:  Megan C replied 1 year ago.
Thanks, Chris for your positive rating and generous bonus. Please come back and visit me any time you have a tax, finance, or social security question. It was a pleasure working with you today.

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Megan C
Megan C
Tax Professional
15587 Satisfied Customers
Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level