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Ask Lane Your Own Question
Category: Finance
Satisfied Customers: 12035
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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A husband and wife have been filing a partnership return for

Customer Question

A husband and wife have been filing a partnership return for a home healthcare business and another partnership return for a pharmacy. Each partnership has been filing a 1065 with a 50 percent share for each spouse. I know there is a limited liability
benefit if they form LLC's. My question: Would there be any tax advantage to forming LLC for each partnership? I
Submitted: 2 years ago.
Category: Finance
Expert:  Lane replied 2 years ago.
Nope, none whatsoever.
As a matter of fact you will continue to file a partnership return because you'd be a multiple Member LLC (which is taxed by a partnership, by default)
And yes. liability protection from personal assets AND an additional layer of liability protection if you set up two separate LLC's because then creditors, lawsuits, etc can only come against the LLC it's doing business with (Not you, personally NOR the other LLC).
Now, if you are at a profit level that's WELL above your expenses (Plus what a reasonable salary would be for what you contribute in services) electing S-Corp taxation for the LLC CAN save you some in SE taxes.
The S-Corp is a pass- through as well. And, for many, you end up paying the same in both halves of SS & Medicare (1/2 from your required S-Corp salary and the other 1/2 paid by the company, YOU) as you do now in SE tax.
However once your are WELL above your salary and other expenses in the S-Corp, the rest of that profit is distributed on the K-1, essentially as a dividend ... NO social security & Medicare( AKA Self-Employment tax).
Let's say that you have a gross of 100,000 take a 50,000 salary and have 25,000 in other expenses ... You'll still pay then same in SS & Medicare as you do now in SE Tax on your salary (again, 1/2 out of your W-2 and 1/2 paid by the S-Corp (you).
But on that remaining $25,000 in profit, there's no 15.3% tax.
So the tax savings is 25,000 x .153 = 3825
HOPWEVER, that's ABOUT what having a CPA firm do your payroll, W-2's, pay-in payroll taxes monthly, and do your quarterly 941s and the 940 would charge ... Mire in many places
So only once you are HIGHLY profitable does the S-Corp really make sense, given the additional administrative overhead, headaches, and inflexibility.
Although there's no real tax savings for the LLCs, I would consider spending the 300 bucks or so each to set up the LLC. (600 for two). Now, if you have those liabilities covered in other ways, maybe not.
let me know if you have questions ...

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