In this scenario, a single member LLC has income of $100,000 and is passed straight through to the owner, subject to income tax and self employment taxes.
Single member LLC has borrowed $105,000 at an interest rate of 5%. $100,000 is used to pay a contractor and $5,000 is used the same year as payment to the creditor.
A) Is the owner's income tax liability lowered by $100,000 for the expense and a further $5,000 for the business loan interest, resulting in $0 income tax while having fixed self employment taxes?
B) Would the S-Corp election completely remove the self employment tax as well?
C) Would the S-Corp's greater expenses than earnings now result in a Net Operating Loss of $5,000 to further carry forward greater tax deductions into the next year? Distinct from a single member LLC without the election.