How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Mark Taylor Your Own Question
Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2063
Experience:  Certified Public Accountant
93680669
Type Your Tax Question Here...
Mark Taylor is online now
A new question is answered every 9 seconds

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

Customer Question

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: 13 days ago.
Category: Tax
Expert:  Mark Taylor replied 13 days ago.

Hi, my name is Mark. I will be happy to help you with your questions.

Expert:  Mark Taylor replied 13 days 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.

Customer: replied 13 days 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
Expert:  Mark Taylor replied 13 days 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.

Customer: replied 13 days 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?
Expert:  Mark Taylor replied 13 days 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.

Customer: replied 13 days 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%
Expert:  Mark Taylor replied 13 days 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?

Customer: replied 13 days 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?
Expert:  Mark Taylor replied 13 days 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.

Expert:  Mark Taylor replied 13 days 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.

Customer: replied 13 days ago.
for 2016 i made around 150k, and i do i itemized deduction a lot. i paid tax about 33k. married file separately
Customer: replied 13 days ago.
it is just 1099
Customer: replied 13 days ago.
k, my total tax burden is $54,710, does this amount include state tax too?
Expert:  Mark Taylor replied 13 days 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.

Expert:  Mark Taylor replied 13 days ago.

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

Customer: replied 13 days ago.
do i need to pay federal or state tax for the remaining another 90k of S-corp income?
Customer: replied 13 days 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: replied 13 days ago.
basically you are saying it is better to stay 1099 for me than form S-corp or LLC?
Expert:  Mark Taylor replied 13 days 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.

Customer: replied 13 days ago.
Last year adjusted gross income was 89k
Customer: replied 13 days ago.
Is deduction allowed in S-corp
Expert:  Mark Taylor replied 13 days 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.

Expert:  Mark Taylor replied 13 days 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.