Drafting a business plan, trying to determine whether an LLC or S Corp would produce a lower tax liability (in the scenario below I am "Partner A"). Three Partners: Partner A, Partner B, Partner C
Year 2015: Partner A who will be doing all the work for the year 2015, makes no financial contribution. Partner B contributes $100,000 and does no work for the company. Partner C contributes $50,000 and does no work for the company. Parter A will receive salary of $100,000. $50,000 will be used for business expenses. Profit for 2015: $0.
Year 2016: Partner A continues to receive salary of $100,000. As in 2015, Partner A does all the work, Partners B & C do no work and will receive no salary. Company profit of $4,100,000. Losses: $0. Profit will be distributed amongst A, B, C as follows: Partner A receives 25% of the profit, Partner B receives 50% of the profit, Partner C receives 25% of the profit.
Would it be better to form the company as an LLC or an S Corp to reduce tax liability? The company is formed in Florida, which has no state income tax.
If needed, salary of Partner A could be reduced to $74,900 (top limit of 15% tax bracket for married filing jointly) for years 2015 & 2016 if it would make a significant difference on 2016 tax liability.