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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11547
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I am an architect with several businesses. a. sole practitioner b.

This answer was rated:

I am an architect with several businesses.

a. sole practitioner
b. an LLC for certain projects
c. an C-Corp for larger projects.

I received a $25K payment for services as a sole practitioner, but would like to limit my personal tax liability for that payment I received. How should I transfer those funds to either the LLC or C-Corp to reduce the tax liability.

A portion of those funds go to pay a sub-consultant that worked on the project, so a portion of the proceeds will be a deductible expense for professional services.

Lane :

Hi,

Lane :

You have already received the check (made out to you personally, rather than to the LLC or C-Corp)?

Customer:

Yes, and deposited.

Lane :

Because an LLC and a sole proprietor, are pass-through entities, the amount (after deducting business expanses, as you mention) will end up on line 12 of your personal income tax return (business income or loss)

Lane :

Th, from a tax standpoint is probably the best, XXXXX XXXXX two reasons:

Lane :

(1) the C-Corp (paying it's own taxes at corporate rates) may be at a higher bracked than you, individually ... AND ...

Lane :

(2) After the C-corp pays it's own taxes, any dividends you pull for yourself will be taxed again at your individual level (this is the double taxation you hear about, with regard to C-Corps)

Lane :

It really depends on an analysis of YOUR personal marginal tax rate for the year, as compared to the c.corps rate

Customer:

Should I just pay the consultant through my personal account that the check was deposited in, or transfer to the LLC and pay from there?

Lane :

Hoevenr, if the check wasn't made out TO the c-Corp, thismay be a non-issue anyway, (unless you can have the maker, stop payment and re-issue to the C-Corp)

Customer:

Too late for that, plus it took 6 months to finally get payment....

Lane :

Either way works, again because the net profit will be taxed at your personal level from either the LLC or the sole prop ... from a liability standpoint, it WOULD be better to run everything through the C-Corp

Customer:

I need transfer some of those funds to the C-Corp to cover some expenses. How should that be classified?

Customer:

on the C-corp books'

Lane :

Understand, but yes ... I would do it all through the LLC, you'll just file a schedule C with for the LLC as an attachment to your 1040 and you will have that expenses (and any other business expenses of the LLC_ deducted before carrying it to the 1040

Lane :

This doesn't touch the C-Corps books at all

Lane :

IF it was made to you personally, the C-Corp did not do this businessa

Lane :

but because the tax effect (and ownership) is effectively the same for the Sole PRop and the LLC (both disregarded entities by IRS) just deposit it to the LLC account and report it there

Customer:

Yes, I know. I just need money in the C-Corp account to pay other expenses.....should this be a loan to the corp from the LLC or categorized as some sort of equity investment

Lane :

Sure, you can just contribute the money to the C-corp as a capital investment (it will increase your basis in the C-Corp, should you ever sell it) BUT you'll still need to report the INCOME (or rather the profit left after taking business expenses) on your tax return (again BEST done through the LLC)

Customer:

Got it...So I record it as a Capital Investment in the C-Corp books. thanks

Lane :

debit cash, credit owners capital ... BUT that's t the taxable event... the profit from the business is

Lane :

sorry for the typo (trying to say, investing in the C. Corp) is "N"T" the taxable event

Lane :

geez, is NOT

Lane :

:)

Lane :

but yes, you have it

Lane :

Back to your original question? It's being sure that you use all of the ordinary and necessary business expenses you can (including the contractor) on the schedule C for the LLC on your taxes for this year that will get that tax bill down.

Lane :

Hope this has helped

Lane :

Lane

Customer:

yes it has. So no taxable event from the LLC providing owners capital to the C-corp.

Lane :

exactly, its just taking your after tax dollars and investing in your C-Corp (the tax benefit of that will come when you sell your C-Corp and have a lower capital gain because of it)

Lane :

If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.


HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

Lane :

I still don't see you coming into the chat session, so I'll move us to the "Q&A" mode. … Maybe that will help … (We can still continue a dialogue there, just not in real-time chat, as we can here)


Please let me know if you have any questions at all ...


Lane


Hi Randy,

... just checking back in here, as I never saw you come back into the chat.

Again, let me know if I can help further.

(Positive feedback appreciated)

Lane
Lane and other Tax Specialists are ready to help you

Thanks much for the rating Randy.

If you'd like to ask for me again, just say FOR LANE on a question.

BTW, my daughter just finished a model of Falling Water.

Thanks again,
Lane