Posted by Tim Jensen on December 23, 2001 at 14:31:14:
Entities: How To Avoid Self-Employment Taxes? - Posted by Hugh Gaugler
Posted by Hugh Gaugler on December 23, 2001 at 13:47:13:
My understanding is that the income derived from a C corp is not subject to self-employmeent taxation, while the income derived from an S corp is.
If that’s true, then what happens when one elects for an LLC to be taxed as a corp? It the income taxed as a C or an S corp?
In other words, is there a way to avoid self-employment taxation for income derived from an LLC? Or, is a C corp the only way to avoid this tax?
Thanks!
— Hugh
Re: Entities: How To Avoid Self-Employment Taxes? - Posted by JHyre in Ohio
Posted by JHyre in Ohio on December 27, 2001 at 11:24:20:
S-corp distributions and C-corp dividends are not subject to SS tax. Salaries are subject to SS tax and each of those entities must pay a reasonable salary. Dividends/distributions in excess of salary are not subject to SS tax, as Ken in SC pointed out. Distributions from LLCs/partnerships are generally subject to SS tax, unless the underlying activity is passive (e.g.- rentals). As far as partnerships are concerned, SS taxability is not well settled…my approach is generally that if the activity would be subject to SS tax if you performed it as a self-employed person, partners pay. If the activity would not be subject to SS tax if performed on your own, then it should not be subject to SS tax when performed as part of a partnership. Limited partners in limited partnerships have a good argument for not paying SS tax at all, though the general partner will be on the hook if it’s an individual.
John Hyre
Re: Entities: How To Avoid Self-Employment Taxes? - Posted by ken in sc
Posted by ken in sc on December 27, 2001 at 10:42:51:
I AM NOT AN ACCOUNTANT! That being said, here is what I do.
I have an S-Corp. I pay myself a nominal “salary” every year, say $20,000 to “manage” that company. Self employment tax is paid on this. The rest of the income is paid out to shareholders (my wife is a big one!) as income on a K-1 form which is not subject to self employment tax.
Ken
Re: Entities: How To Avoid Self-Employment Taxes? - Posted by Kent C
Posted by Kent C on December 24, 2001 at 02:11:27:
I want to hear this one also…NT