Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

I am registered securities broker affiliated with an independent

broker/dealer. As such...
I am registered securities broker affiliated with an independent broker/dealer. As such, I operate as an independent contractor and received a 1099 for all commission and fee income. Under FINRA laws, the all commissions and fee income must be paid directly to a licensed individual, not a corporation.

I am told that some advisors are able to manage their tax liabilities by forming an LLC, or S-Corp and “assigning” income and expenses to the company and paying themselves from the company. I’d like help with the following:

1) Should I remain as a sole proprietor or form an LLC, or S-Corp? How will my choice impact my income and self-employment tax liability?

2) Can I assign income and expenses to the LLC/S-Corp? How? Specifically, what do I need to do to make the assignment?

Additionally, I live in Maine and rent office space in New Hampshire. The Broker/Dealer that pays me in Massachusetts. New Hampshire has a Business Profits Tax (8.5% on “income from conducting business activity within the state”) and Business Enterprise Tax (.75% for businesses with gross receipts of $150K). Maine does not. My clients are all around the country, with only a small portion on my income coming from New Hampshire domiciled clients.

1) What state should I form in? NH (office) or Maine (home)?
2) Can I segregate my income received from outside New Hampshire for the purposes of New Hampshire business taxes? For example, does my income received from clients living in Florida constitute business activity in New Hampshire?
3) Does income received from my broker dealer in Massachusetts constitute business activity in New Hampshire? (I’m assuming my office location means something.)

Here are some links to discussions about this issue:
http://forums.registeredrep.com/forums/rias-independents/assigning-income-subchaper-s-corp
http://www.investopedia.com/articles/tax/11/tax-tips-for-advisors.asp#axzz1oMGyvt7V

I’d like an experienced opinion with some actionable steps. Thank you.
Show More
Show Less
Ask Your Own Tax Question
Answered in 26 minutes by:
3/6/2012
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,132
Experience: Taxes, Immigration, Labor Relations
Verified

Hi and welcome to Just Answer!

1) Should I remain as a sole proprietor or form an LLC, or S-Corp? How will my choice impact my income and self-employment tax liability?
That is something you need to decide it you want to have a separate legal entity.

Potentially you may have saving on employment (self-employment ) taxes if operate via S-corporation.

Having a single member LLC will not have any effect on your tax liability because it is a disregarded entity - and all income and expenses are reported as if you were a solo proprietor.

Also - in your situation because of FINRA requirements - you will not have legal protection when run operations through the LLC.
2) Can I assign income and expenses to the LLC/S-Corp? How? Specifically, what do I need to do to make the assignment?

You may not ""re-assign" your personal income to a different entity. However you may pay to a different entity for services and that would be your deductible expense - thus your personal income would be shifted to the entity.

Will or not you benefit from that - that is a different issues.

Bit having a separate legal (and in some situations taxing) entity - will require additional overhead - so you will only go this way is you clear see benefits.

 

1) What state should I form in? NH (office) or Maine (home)?

As a general rule - if you want to form a separate legal entity - you need to register it in the state where the entity will be operating. Thus if you operating your business activities out of your New Hampshire office - it should be registered in this state.

Even you register the entity in a different state - most states require additional registration for foreign (out of state) entities.
2) Can I segregate my income received from outside New Hampshire for the purposes of New Hampshire business taxes? For example, does my income received from clients living in Florida constitute business activity in New Hampshire?
That is based not on the location of your clients - but on your business location. If you operate your business activity in New Hampshire - the compensation you receive for that activity is considered as from New Hampshire sources and taxable under New Hampshire tax laws.

3) Does income received from my broker dealer in Massachusetts constitute business activity in New Hampshire? (I'm assuming my office location means something.)

Again - the location of payer is irrelevant - but the location of your business activity determines the source of income and jurisdiction (state and locality) which could tax that income.

 

Let me know if you need any help.

Ask Your Own Tax Question
Customer reply replied 5 years ago
Thank you Lev. I will accept your answer.

In regards XXXXX XXXXX: "You may not ""re-assign" your personal income to a different entity. However you may pay to a different entity for services and that would be your deductible expense - thus your personal income would be shifted to the entity."

Is there an example that would illustrate how this might work? I assume you mean the individual pays the LLC or S-Corp. for services rendered by the entity to the individual. Can you elaborate?

Your understanding is correct - as long as that is your personal income - and it is reported to you on form 1099 (and to the IRS) - the IRS expects you to report that income.

You may however subcontract some work to a different entity - even if you own that entity - and report that cost as your expenses.

However in case of single member LLC that will not have any meaning because it is a disregarded entity - and all income and expenses are reported as if you were a solo proprietor anyway.

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,132
Experience: Taxes, Immigration, Labor Relations
Verified
Lev and 87 other Tax Specialists are ready to help you
Ask your own question now
Ask Lev Your Own Question
Lev
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,132
30,132 Satisfied Customers
Experience: Taxes, Immigration, Labor Relations

Lev is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,310 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,695 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
Are you familiar with income tax laws on business and
Are you familiar with income tax laws on business and personal returns? … read more
Lev
Lev
Tax Advisor
30,132 satisfied customers
A foreign individual is a member of a US LLC. Are there any
A foreign individual is a member of a US LLC. Are there any extra requirements for filing when it comes to the partnership return?… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,458 satisfied customers
I wanted to form a sole proprietor business using my name,
i wanted to form a sole proprietor business using my name, and wound up using my name as a company name, is there a way to reverse this and do it the right way … read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
Can an independent contractor/ 1099 worker's wages be
Can an independent contractor/ 1099 worker's wages be garnished in Texas for federal student loan debt?… read more
abci168
abci168
Principal
27 satisfied customers
Business tax question. I am a sole proprietor consultant and
Business tax question. I am a sole proprietor consultant and I travel quite a bit for business. I have been increasingly using uber instead of renting cars and I assume this is a deductible expense. I… read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
I had some self employment income where I was paid in
I had some self employment income where I was paid in bitcoin. I also made some bitcoin payments to a couple of businesses for what would be considered commissions. Would I report the income and expen… read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
723 satisfied customers
I have a client that was a Sole Proprietor. He formed an LLC
I have a client that was a Sole Proprietor. He formed an LLC and elected to be taxed as an S-corp on 8/1/17. He purchased a $39k vehicle in his sole proprietorship in 2015 and deducted Sec 179 and A/D… read more
Lev
Lev
Tax Advisor
30,132 satisfied customers
If an owner took a draw from the business (sole proprietor
If an owner took a draw from the business (sole proprietor llc) and the business is showing a loss excluding that draw then I assume no income or self employment taxes will be paid since there is a lo… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,458 satisfied customers
I am working as an independent contractor for a university
I am working as an independent contractor for a university and have an LLC with C taxation election. The University refused to accept the W9 listing the LLC and informed me that I must complete the W9… read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
Income from the leasing of cars...is it self employment
Income from the leasing of cars...is it self employment income? … read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
I am self employed sole proprietor (no employees) and I am
I am self employed sole proprietor (no employees) and I am over 50 years old. I contribute to a Roth IRA for $6500 per year. How much can I additionally contribute to a solo-401K (including employer c… read more
Lev
Lev
Tax Advisor
30,132 satisfied customers
A sole proprietor with a tentative loss may deduct which of
a sole proprietor with a tentative loss may deduct which of the following for qualified business-use-of-home expenses:mortgage interest depreciation rent utilities… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,217 satisfied customers
As an independent contractor (1099) should I form an LLC? Do
As an independent contractor (1099) should I form an LLC? Do I need to? … read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
723 satisfied customers
Tax law Employer provide rent for out-state employee, and
tax law Employer provide rent for out-state employee, and the employee should be able to exclude the value of the lodging from gross income. If we have the contract to stated that the employee must be… read more
Lev
Lev
Tax Advisor
30,132 satisfied customers
If I work as an independent contractor under a foreign LLC
If I work as an independent contractor under a foreign LLC partnership in California, do I need to register as a foreign LLC in CA? The gross income from CA this year would be less than 50K. CA is NOT… read more
taxmanrog
taxmanrog
Master\u0027s Degree
698 satisfied customers
I am aware that a foreigner can form an LLC in the states.
Hi,I am aware that a foreigner can form an LLC in the states. My question is; if he/she is living in Japan and wants to live in California by starting a business, is forming an LLC here in the US solv… read more
Lev
Lev
Tax Advisor
30,132 satisfied customers
My question involves immigration law and tax law. Foreigner
My question involves immigration law and tax law.Foreigner comes to USA, becomes permanent resident. Had assets from before. I was told if you bring up to 100k USD per year to the USA, IRS doesn't min… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
I am a sole proprietor LLC, and work in the Corporate AV
quot;I am a sole proprietor LLC, and work in the Corporate AV Meeting industry , with 2 kinds of AV income. W-2 from one company part time, and 1099 from other companies. Will my employer contribution… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x