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I am considered working for a Financial Advisory firm where…

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I am considered working...

I am considered working for a Financial Advisory firm where I would received 1099 fees and commissions. I believe that I need to take those personally, but may transfer into an LLC or S corp, thoughts on what I need to create, an LLC or S corp, or other?

Submitted: 4 months ago.Category: Tax
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12/20/2017
Tax Professional: Tax.appeal.168, Tax Accountant replied 4 months ago
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
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Experience: 3+ decades of varied tax industry exp. Tax Biz owner
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Tax Professional: Tax.appeal.168, Tax Accountant replied 4 months ago

On the individual level, if you are paid more than $600 by the payer, the Form 1099-MiSC is required to be issued to you. However, if you decide to form an LLC or S Corp., the form 1099-MISC is not required to be issued, even though the income will still be taxable. SEE BELOW:

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Exceptions. Some payments do not have to be reported on Form 1099-MISC, although they may be taxable to the recipient. Payments for which a Form 1099-MISC is not required include all of the following. Generally, payments to a corporation (including a limited liability company (LLC) that is treated as a C or S corporation). In some cases payments to corporations are required to be reported on the Form 1099-MISC. SEE BELOW:

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Reportable payments to corporations. The following payments made to corporations generally must be reported on Form 1099-MISC. Medical and health care payments reported in box 6. Fish purchases for cash reported in box 7. Attorneys' fees reported in box 7. Gross proceeds paid to an attorney reported in box 14. Substitute payments in lieu of dividends or tax-exempt interest reported in box 8. Payments by a federal executive agency for services (vendors) reported in box 7.

REFERENCE SOURCE:

https://www.irs.gov/pub/irs-pdf/i1099msc.pdf

Form 1099-MISC insrtructions

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Tax Professional: Tax.appeal.168, Tax Accountant replied 4 months ago

Now, regarding whether of your not you should form an LLC or S-Corp. depends on what your business goals are. Following is a list of comparisons between the two entities.

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The similarities

LLCs and S corps have much in common:

  • Limited liability protection. With both, owners are typically not personally responsible for business debts and liabilities.
  • Separate entities. Both are separate legal entities created by a state filing.
  • Pass-through taxation. Both are typically pass-through tax entities, and while S corps must file a business tax return, LLCs only file business tax returns if the LLC has more than one owner. With pass-through taxation, no income taxes are paid at the business level. Business profit or loss is passed-through to owners’ personal tax returns. Any necessary tax is reported and paid at the individual level.
  • Ongoing state requirements. Both are subject to state-mandated formalities, such as filing annual reports and paying the necessary fees.

Differences in ownership and formalities

Ownership. The IRS restricts S corporation ownership, but not that of limited liability companies. IRS restrictions include the following:

  • LLCs can have an unlimited number of members; S corps can have no more than 100 shareholders (owners).
  • Non-U.S. citizens/residents can be members of LLCs; S corps may not have non-U.S. citizens/residents as shareholders.
  • S corporations cannot be owned by C corporations, other S corporations, LLCs, partnerships or many trusts. This is not the case for LLCs.
  • LLCs are allowed to have subsidiaries without restriction.

Ongoing formalities. S corporations face more extensive internal formalities. LLCs are recommended, but not required, to follow internal formalities.

  • Required formalities for S corporations include: Adopting bylaws, issuing stock, holding initial and annual director and shareholder meetings, and keeping meeting minutes with corporate records.
  • Recommended formalities for LLCs include: Adopting an operating agreement, issuing membership shares, holding and documenting annual member meetings (and manager meetings, if the LLC is manager-managed), and documenting all major company decisions.

Differences in management

  • Owners of an LLC can choose to have members (owners) or managers manage the LLC. When members manage an LLC, the LLC is much like a partnership. If run by managers, the LLC more closely resembles a corporation; members will not be involved in the daily business decisions.
  • S corps have directors and officers. The board of directors oversees corporate affairs and handles major decisions but not daily operations. Instead, directors elect officers who manage daily business affairs.
  • Other differences

    Other differences between S corps and LLCs include:

  • Existence. An S corporation’s existence is perpetual, but some states require LLCs to list a dissolution date in the formation documents. Certain events, such as death or withdrawal of a member, can cause the LLC to dissolve.
  • Transferability of ownership. S corporation stock is freely transferable, as long as IRS ownership restrictions are othmet. LLC membership interest (ownership) typically is not freely transferable—approval from other members is often required.
  • Self-employment taxes. S corporations may have preferable self-employment taxes compared to the LLC because the owner can be treated as an employee and paid a reasonable salary. FICA taxes are withheld and paid on that amount. Corporate earnings after payment of the salary may be able to be treated as unearned income that is not subject to self-employment taxes.

REFERENCE SOURCE:

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

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