4

I am in the process of creating an LLC and am trying to decide whether to file as an S Corp.

I make $80,000 at my day job and would be paying myself (via W2) at least 30,000, so I would be above the $110,100 income limit on which I'd have to pay social security tax.

Either way, I will be make $110,100 in 2012. So is there any advantage to filing as an S Corp?

Am I correct that I won't pay social security tax on anything over $110,100 that I make from my day job and my LLC combined?

3

That is correct, the SS cap is on total wages, not each wage. When you create an LLC (as a disregarded entity), you don't pay yourself with a W2, all the LLC earnings are your earnings. So instead of Social Security deductions, you will be paying Self-Employement Tax (which totals to the same amount as you would be paying with W2 to yourself, just under different name).

Note that S-Corp is a pass-through entity for Federal taxes, so there's not much difference from LLC being taxed as LLC (other than extra complexity, for S-Corp you need to file additional forms while LLC is completely invisible on your Federal taxes). It may be different on a state level, but probably not much as well.

S-Corp existed when there were no LLC's, but now I don't see a reason to ever deal with S-Coprs unless you're dealing with shareholders and shares.

Something to take into the account: if you're paying yourself with W2 - you'll have to deduct the FICA taxes on all your earnings, and then get credit on your 1040. With LLC - you won't have to pay and wait for refunds.

  • "the SS cap is on total wages, not each wage" do you have a source for that? I'm looking at the 1040 SE right now and i don't see anywhere that it takes your w2 wages into account. I believe you pay self-employment tax at 13.3% on the first $110,000 of self-employment income, regardless of w2 wages. – Mark E. Haase Mar 22 '12 at 1:59
  • @mehaase sure, here: irs.gov/businesses/small/article/0,,id=98846,00.html#1, quote: For both 2010 and 2011, the first $106,800 of your combined wages, tips, and net earnings are subject to any combination of the Social Security part of self-employment tax, Social Security tax, or railroad retirement (tier 1) tax. Income you make after $106,800 will not be subject to the Social Security tax. – littleadv Mar 22 '12 at 4:28
  • You mentioned "unless you're dealing with shareholders and shares". I think that's a key distinction and would expand it to "unless there's any possibility that you may one day seek investors", which I based on the strong advice to form an S-Corp in Delaware over an LLC and any other state, by TechStars VC's in the book "Do More Faster". – Hack-R Jun 15 '16 at 22:35

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.