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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.

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    Self employment tax is paid on the profit, not on revenue. Therefore as you have described it there will be no self-employment tax. – farnsy Jul 24 '17 at 23:07
  • @farnsy ah yes that is an important nuance! this also answers part B) or at least should be a factor – CQM Jul 24 '17 at 23:08
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    Your first sentence needs clarification as well. Income subject to expenses is passed through to the owner. The owner then pays income and self-employment tax on what it received. A single-member LLC does not itself pay any income taxes. – gaefan Jul 25 '17 at 12:18
  • @JeffO'Neill so when I read the first sentence that is exactly what it says to me, how is that ambiguous? the title is literally "pass through tax liability", why even bother assuming I don't know that? In any case, how would you re-word it? – CQM Jul 25 '17 at 16:45

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