My student loan payment is based on my income. If my income goes up, my payment increases.

I am starting a business in addition to my regular income. I was planning on creating an LLC because of the reduced organization requirements vs a C-corp. However, if I understand correctly, the LLC's income is counted as my personal income for tax purposes. Is that correct? That is what I'm trying to avoid, since that will increase my student loan payment. Or does it only count as my personal taxes if I do some sort of distribution?

Is there a type of business entity I can look into that has lower paperwork and records requirements like the LLC but doesn't pass the income to my personal income?

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    Why don't you want to just use the extra money you make to pay more on the loans? – Hart CO Dec 2 '19 at 19:49
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    The paperwork and fees necessary to create a shell corporation is probably going to be worse than the increase in loan payment. – D Stanley Dec 2 '19 at 20:12
  • Does your loan agreement include ALL income? Are you planning on compensating yourself from the business of just keep all of the profits in the business until your loans are paid off? – D Stanley Dec 2 '19 at 20:37
  • @DStanley, Yes, it includes all income. I planned on keeping most of it in the business. – zatazinks Dec 2 '19 at 20:41
  • @HartCO and zatazinks: I think there is a potential basic confusion. Is the question about a loan with a known principal where the minimum payment depends on income, or a loan whose total amount owed depends on income? The latter case (a "bet" on the student's financial success) helps students avoid crushing debt if they end up making little money, but means that if they get more income they must pay more each month and do not pay off the loan any sooner. This would create a strong incentive to divert/defer income. – nanoman Dec 3 '19 at 8:09

A C-Corp is taxed as a separate entity. So if you start a C-Corp and it has $50k in profit, it will pay corporate income tax on that profit while your personal income tax return will show none of that $50k as income. However, you also won't be able to use that money for personal expenses. If you pay yourself from the company via salary or dividend that would be counted as income on your personal tax return.

Currently owners of pass-through entities (sole proprietorship, partnership, s-corp) can benefit from a 20% pass-through deduction, this makes pass-through income very attractive. If you have other good reasons to start a C-Corp (like planning on taking on investors) then it might be worth considering, if not it's almost certainly not worth the cost/hassle. View your additional income and therefore increased student loan payments as a benefit, you'll be out of debt sooner.

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    This is a good answer. Basically, the response to OP's question is: "No," there's no magic loophole to avoid paying taxes on income, even via a corporation. Any smaller loopholes for reducing your taxes will involve more paperwork and records requirements, with only a modest savings at best. – Rocky Dec 2 '19 at 21:22
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    >there's no magic loophole to avoid paying taxes on income @Rocky, for clarification, I'm not trying to avoid taxes on income. I'm trying to keep business income from showing up in my personal income so my student loan payments don't increase. But, otherwise, I agree this is a good answer. – zatazinks Dec 2 '19 at 22:12

Single Member LLCs can be taxed in two ways:

  1. Sole Proprietor
  2. S-Corporation

If you choose to become taxed as an S-Corporation (you have 30 days to elect S-Corp designation), then you have to do two things:

  1. Pay yourself as a W2 employee at a reasonable wage.
  2. Any profits and losses from your S-Corp are "Passed Through" to your personal tax return.

Note: I am not a tax accountant or lawyer, this information is from my own experience in starting a Single Member LLC in the state of Virginia.

You need to engage a tax attorney or accountant and get their advice.


A single member of an LLC must pay self-employment tax. All profit of the LLC is salary to the member.

Salary from a C-corporation must pay Social Security tax with half paid by the company and half paid by the employee.

A single-member LLC that elects to be taxed as a corporation still keeps the category of paying employment tax on salary. However, I suppose that not all of the profit is required to be salary.

Dividends from a C-corporation are taxed twice. Dividends come out of retained earnings otherwise the distribution is return-of-capital.

Getting the new pass-through tax rate for an LLC requires meeting difficult IRS guidance.

A C-corporation that elects to be taxed as a pass-through S-corporation must meet a set of limiting rules.


I find it hard to believe business income of an LLC would be counted as your income, but then again I'm not familiar with the US tax system.

Generally, businesses receive revenue. They have to pay expenses out of these. Whatever remains out of the revenue is retained earnings and can be either paid to the business owner as dividends or reinvested into the business.

If you have a business, you could research whether it would be possible to make that company into a dual-purpose company: (1) create revenue from normal business operations, (2) invest that revenue into the stock market or wherever you would like to invest it, without paying any dividends.

If the retained business earnings that were not distributed as dividends would be counted as your personal income, it would be very strange as the business can invest the retained earnings somewhere, to create even more retained earnings in the future.

Where I live, only dividends genuinely distributed to the shareholders count as personal income. You can own a billion dollar business, and if it doesn't distribute any dividends, your income is basically just the regular salary you obtain.

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