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Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 2308
Experience:  Certified Public Accountant
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I am getting pursued by a company out of town who wants me

Customer Question

Hi, I am getting pursued by a company out of town who wants me to work for them, but I will not be able to live in their region. They want me to form an LLC so they can use me as a consultant and I was wondering what the tax ramifications were for me?
JA: The Accountant will know how to help. Is there anything else the Accountant should be aware of?
Customer: Nothing that I am aware of other than I will be getting reimbursed for travel expenses.
Submitted: 1 year ago.
Category: Finance
Expert:  Mark Taylor replied 1 year ago.

Hi, my name is Mark. I will be happy to help you with your questions. Will you be the only owner of the LLC?

Customer: replied 1 year ago.
Expert:  Mark Taylor replied 1 year ago.

As a single member LLC the IRS would be treated as a disregarded entity. This means that it will be treated as a Schedule C on your individual tax return. The net income of the LLC would be subject to both Self Employment Taxes and Income Taxes. Self-Employment taxes is 15.3% of the first $118,500 of self-employment income. Once you exceed this limit the amount of Self Employment tax drops to 2.9%.

You could make an E-election to be treated as a S-Corporation. The one benefit of an S-Corporation is that the income would flow to you and not be subject to Self Employment Taxes. There would be an additional administrative burden associated with an S-Corporation. You would need to pay yourself a reasonable salary. This would require that you file the appropriate federal and state payroll tax reports (Form 941, 940, W-2, W-3 and state payroll tax reports). You would also need to file a separate tax return for the corporation (Form 1120S).

One benefit of forming the LLC is that you could put a large amount towards a qualified retirement plan. With a SEP plan you could contribute up to $53,000 to the plan. The amount is limited to the amount of earned income. The limitation is roughly 25% of the earned income. The earned income would be the net earnings of the LLC (if treated as a disregarded entity) or the S-Corporation wages.