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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 41856
Experience:  Taxes, Immigration, Labor Relations
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I have a single-member LLC taxed as sole-proprietor. I want

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I have a single-member LLC taxed as sole-proprietor. I want to buy 100% shares of an S-Corporation from the owner (the S-Corp is my principal client). I've been thinking my LLC should buy the shares, not me. Is there any drawback? the S-Corp has about $170,000 annual revenue
JA: Have you talked to a tax professional about this?
Customer: No, not yet
JA: Anything else you want the Accountant to know before I connect you?
Customer: I'm not sure what else they'll want to know

From tax perspective - because the LLC is a disregarded entity - that makes no difference if you personally or your single member LLC is a shareholder of that S-corporation.

However - in case the LLC will be a shareholder - if later you will choose

- to add a member to that LLC, or

- to elect the LLC to be treated as a corporation

Then - S-corporation will be automatically converted to C-corporation.

If that is not what you want - you might avoid such changes.

Questions?

 

 

Customer: replied 1 month ago.
Is their any difference in my bottom line tax bill because of Self employment tax?

Because both a single member LLC and S-corporation do not pay income tax or self-employment tax - there is no difference.

All income will be passed to you personally regardless if you personally or the SMLLC will legally be a shareholder.

The LLC will be simply disregarded (ignored) - and income reported by S-corporation will be directly reported on your individual tax return.

Customer: replied 1 month ago.
Part of the purchase terms requires an 18% royalty ... if my LLC owns the shares then I can deduct the royalty as an expense, correct? I'm thinking that the distribution is made to the LLC and my LLC deducts the royalty expense so it does not become part of my taxed income.

That is not correct assumption...

Because that is a single member LLC - it is disregarded entity.

Disregarded - means ignored for income tax purposes.

That means all income and all expenses received and paid by the LLC are considered as received and paid by you personally.

So - if the LLC rurs business operations and pays royalties which qualifies as business expenses - then - you will report business income and deductible business expenses on schedule C attached to your individual tax return.

That woudl be the SAME if business activities are run by your personally and there is no any LLC.

Let me know if that helps.

Lev and 3 other Tax Specialists are ready to help you
Customer: replied 1 month ago.
Yes, understood. Thanks.