LLCs with an S-Corp's election eliminate SE Tax. If that S-Corp is owned by a single-member LLC which should be seen as a disregarded entity, would that flow through money have SE tax again?

The reason that the single-member LLC needs to have reportable income is because there is a solo 401k associated with it and individuals can only have one of those.

(If SE tax is reintroduced then it is possible to close the 401k and put it on the S-Corp)

  • Are you just asking how the distribution portion would be handled if funneled into an LLC? On the compensation portion there'd either be employment tax paid by the S-Corp and individual or SE by the owner of the single-member LLC. – Hart CO May 10 '19 at 18:34
  • @HartCO yes how the distribution portion would be handled if funneled into a single member LLC, I understand the compensation portion since I the individual would be employed by the S-Corp and that has nothing to do with the LLC shareholder – CQM May 10 '19 at 18:54
  • The S-Corp could pay the LLC for services rendered, which would mean no employment tax by the S-Corp on that portion but instead SE by the individual. An S-Corp can't own another S-Corp, so changing the 401k to the S-Corp seems to make the most sense. – Hart CO May 10 '19 at 19:04
  • @HartCO why would the S-Corp pay the LLC? That guarantees SE tax. What are your specific thoughts on the single-member LLC being the 100% owner of the S-Corp, where the distribution portion has to go through the LLC: does that or does that not create SE tax on the distribution portion – CQM May 10 '19 at 19:25
  • Sure but it's SE tax in place of an equal amount of employment tax from the S-Corp. Expense to S-Corp, income to LLC. So S-Corp shows $50k less income, LLC shows $50k income, no tax difference on that portion. But thinking about it more that's not necessary. – Hart CO May 10 '19 at 19:57

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