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Does it make sense to create single member LLC with S-Corp…

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Does it make sense to...
Does it make sense to create single member LLC with S-Corp tax election for an independent IT consultant who works currently on W2 for NYC based company but has an option to switch to corp-corp arrangement at a 10% higher rate? If this answer requires premium service please don’t charge me until you estimate and make an offer, outlining how much it will cost and I accept it.
I live in NJ but I work in NYC and I was planning to set up single member LLC with S-Corp tax election through online incorporation service that will provide registered agent as well as primary business address in Albany NY.That will allow me to save on foreign qualification costs had I set up LLC in NJ and also it will save me some costs on NY publication requirements because address is in Albany and not in NYC. This is what I understood so far but I need your opinion:
1.Having LLC with S-Corp election, with primary business address in Albany NY but working in NYC for NYC based company, what taxes I would have to pay?:
- LLC as a pass through doesn’t pay taxes. 70%? of LLC's business income can be passed to sole owner who reports all profits (or losses) of the LLC on Schedule C of 1040 tax return.
- The 70%/30% rule of business income as a salary doesn’t apply to service based LLCs which would be mine (software consulting services).They have to pay 100% of business income as a salary?
- I will have to pay myself reasonable salary on W2 as an employee (or contractor?) and withhold self-employment tax on this (12.% on the first 127,200 and 2.9 on all 70% or 100%?).
- The 70% or 100% of business income would be my salary which I would report on my W2 and file individual tax return.
- I will have to withhold NY income tax on the salary but not NJ income tax.I will file regular individual tax return for NJ as usual and claim credit for taxes paid in NY.
- If allowed 70%/30% the 30% will be passed through and reported on my individual tax return on Schedule C.I will save on self-employment tax on those 30% and I will save on NY income tax too?
- There is also the 20% deduction of allocable share of business income available to S-Corp shareholders.But the deduction cannot exceed 50% of my share of the W2 wages paid.And also this deduction is not available to service based LLCs with taxable income more than $157,500? Can you confirm I would be eligible for this deduction? And what this deduction actually is? It allows to deduct cost of something up to 20% but what exactly?
2.I found that NYC imposes additional tax on LLC with S-Corp election (8.85% of any income that is earned in New York City).But for LLC without S-Corp it would be Unincorporated Business Tax of 4% after the first $95,000 of income.
- So NYC imposes additional tax on LLC?
- For my LLC with S-Corp, registered in Albany NY, but having contract with NYC based company, what NYC tax would I have to pay, if any?
- Would not electing S-Corp but having regular LLC save on taxes (4% UBT after the first $95,000 as opposed to 8.85% for S-Corp)?
3.With regards ***** ***** state taxes as a non-resident I would have to pay tax on distributions from my LLC.Can I have S-Corp election for Federal but not for NY state? Then, I would be able to save on the tax on distributions because nonresidents don’t have to pay it?
4.Also in NY state LLCs with no S-Corp election pays corporate franchise tax as C-Corp whereas S-Corp pays fixed minimum tax based on NY receipts. Which one to choose then to save on taxes?
5.How to classify business income of my LLC? Consulting income, sales income or something else? Would I have to pay Federal, state or city sales tax on my services?
6.How often would I have to pay myself salary? (There are charges for each payroll run in the online accounting service I want to use).Monthly or every 2 months payroll is fine and legal? Would I still have to pay myself salaray and taxes when I am not on a project, looking for a new one?
7.NY state has reporting requirement for biennial report to be submitted.What is this report? Is it about income and taxes or just simple statement about the type of business that LLC is doing? How difficult is it to create such report?
8.Do I have to file quarterly taxes for LLC? Is there any quarterly tax requirement?
9.Would the salary that I would pay myself be business cost that is tax deductible.Would commute, laptop, meals, apartment rent also be tax deductible? Can you provide a list of most common tax deductible items?
10.If I switch to corp-corp my employer is offering 10% higher rate.On W2 I am not getting any benefits.How much more should my employer offer?
11.Given all the changes in new law and given so many NY state and NYC taxes, does it still make sense to switch from W2 rate (800/day) to corp-corp (880/day)? Is the above tax strategy optimal or you can see better ways to save on taxes. Would C-Corp be better?
12.If I decide to close and dissolve my LLC, how much would it cost and what would I have to do?
Submitted: 4 months ago.Category: Finance
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Answered in 15 hours by:
12/20/2017
Financial Professional: bkb1956, Finance Enthusiast replied 4 months ago
bkb1956
bkb1956, Finance Enthusiast
Category: Finance
Satisfied Customers: 5,784
Experience: IRS Enrolled Agent, 20+ years of experience in tax preparation with associated finance experience.
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Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

It does NOT make sense to create a single member LLC with an S corporation election. The LLC/S corporation will then have to file its own federal and state tax returns. Because S corporations are pass through entities, any income/loss is passed through to the shareholder via K-1. The information on the K-1 is included on your personal tax return (Form 1040).

By keeping the single member LLC as a sole proprietorship, you are not required to file a separate tax return for the LLC either on the federal level or state level. You will use Schedule C of your Form 1040 to report income and expenses.

The following link contains excellent information regarding LLC vs. S corporation:

https://www.bizfilings.com/toolkit/research-topics/incorporating-your-business/s-corp-vs-llc

Please let me know if I can assist you further.

Thank you and best regards,

Barb

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Category: Finance
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