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I am trying to form LLC or S-corp. i am tech consultant, I

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i am trying to form...
i am trying to form LLC or S-corp. i am tech consultant
JA: The Accountant will know how to help. Please tell me more, so we can help you best.
Customer: I make about $170k per year and 1099 so far. trying to save tax by forming LLC or S-corp
JA: Is there anything else the Accountant should be aware of?
Customer: live in state of Maryland
Submitted: 6 months ago.Category: Tax
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7/14/2017
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 6 months ago
Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
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Hi, my name is Mark. I will be happy to help you with your questions.

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Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 6 months ago

Both an LLC an S-Corporation are pass-through entities. This means that the income would pass through to the individual members and shareholders. If you own 100% of a LLC it is treated as a disregarded entity. This would be reported on schedule C of your individual tax return. You would pay both income tax and self-employment taxes on this income. Self employment taxes are 15.3% of the $118,500 of earned income. Amounts above this are taxed at 2.9%. With a S-Corporation you would need to file a separate tax return (1120S). You would need to pay yourself a reasonable salary. So you would need to worry about payroll taxes and payroll tax reports. The income from a S-Corporation would not be subject to the self-employment tax. So with a S-Corporation you would be able to avoid some of the self-employment taxes.

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Customer reply replied 6 months ago
i am federal contractor expected to make about $180k for 2017. married filing separately because my wife is not working, rising a child. we both have student loans. since she is not working, she doesn't pay it now. I am paying about $500 per month.
i learned that if i form and LLC or S-corp, i would save tax. I live in state of Maryland, in my case which would be better LLC or S-corp.I am doing lots of research online and i ended up in justanswer.com
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 6 months ago

Your best bet would be a S-Corporation. You would have some additional administrative expenses with a S-Corporation. You would have to file a separate tax return. You would also have to prepare payroll, and payroll tax reports (w-2's, w-3's, state forms, 941's, and 940.) Generally you would want to pay yourself about half of the earnings as a salary. Based on your projection this would be $90,000. Your savings would be $28,500 x 15.3% or a little more than $4,360.

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Customer reply replied 6 months ago
i am a single person, with S-corp all 1500 shares belong to me, do i need to perpare payroll for myself and also prepre w-2's, w-3's, state forms, 941's, and 940?
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 6 months ago

Yes, with a S-corporation you would need to prepare payroll and prepare W-2's, w-3's, 940, and 941's. So there is an additional administrative costs. Quickbooks has a payroll module that will help you prepare the forms. There are companies like ADP that will also process the payroll for you.

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Customer reply replied 6 months ago
my understanding based on your estimated tax saving of $4,360.$90,000 - salary
another $90,000 - for the S-corporation
$28,000 - tax of 90K salary
15.3% - ??what is 15.3%
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 6 months ago

15.3% is for payroll taxes. 6.2% FICA and 1.45 % is for Medicare. If you are an employee you would be 1/2 (7.65%) and your employer would match this amount (7.65%). The combined amount is 15.3%. Where are you coming up with $28,000?

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Customer reply replied 6 months ago
i am getting confused now.. based on assumption i would pay estimated tax for income of $90k, that would be $28.5k. I am trying to figure out how much tax i will pay as S-corp for income of 90K?
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 6 months ago

With a S-Corporation you would not need to make estimated payment these could be made through withholding on your payroll. Can you give me a little more information. Do you usually itemized. I run a quick projection married filing separately - $180,000 as a LLC and $90K wages and 90K S-Corporation income. Please give me a moment.

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Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 6 months ago

At $180,000 with a LLC the taxes came to $60,678. With a S-corporation ($90K wages, and $90K for S-Corp income) the taxes came to $41,993. You would also pay $12,717 in payroll taxes on the wages. So the total tax burden would be $54,710.

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Customer reply replied 6 months ago
for 2016 i made around 150k, and i do i itemized deduction a lot. i paid tax about 33k. married file separately
Customer reply replied 6 months ago
it is just 1099
Customer reply replied 6 months ago
k, my total tax burden is $54,710, does this amount include state tax too?
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 6 months ago

The amounts that I gave you should be a good estimate. The S-Corporation would save you about $5,000 but you would have the additional cost of another tax return and payroll to deal with. This $54710 was just your federal taxes.

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Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 6 months ago

The $54,710 includes the amounts for payroll taxes on the $90,000 of wages.

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Customer reply replied 6 months ago
do i need to pay federal or state tax for the remaining another 90k of S-corp income?
Customer reply replied 6 months ago
here is the question about your estimate (compare 2016 vs 2017)2016 with 152k wages (1099) i paid about 33k federal income tax, with lots of deductible such as home office, travel milage, laundry etc..for 2017 with 180k (90k wage and 90k S-corp income), for 90k wage you estimated me to pay $54,710 federal tax.
of the $54,710 can i do the usual deductable like travel and home office etc?2017-- 90k wage 54, 710 tax
2016 -- 152k wage 33k tax
something doesn't make sense
Customer reply replied 6 months ago
basically you are saying it is better to stay 1099 for me than form S-corp or LLC?
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 6 months ago

I did not consider deduction (travel / home office etc). I assumed the $180,000 was the net amount after the deductions. That is why there is such a large jump in taxes. What was the adjusted gross income on your return last year. It would be better for you to become a S-Corporation. You will save at least $5,000 in taxes.

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Customer reply replied 6 months ago
Last year adjusted gross income was 89k
Customer reply replied 6 months ago
Is deduction allowed in S-corp
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 6 months ago

With a S-corporation you would be able to deduct any ordinary and necessary expenses. So you would be able to deduct any expenses that are associated with the generation of the income.

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Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 6 months ago

It sounds like your income will be about $30K more this year. You would need to pay yourself a salary in the range of $60,000 and then $60,000 can pass through the S-corporation. You would save about $9,000 in taxes.

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