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9 Replies Last post: Dec 18, 2008 1:58 PM by MacWizards

LLC Owner as an employee

Jan 16, 2008 10:19 PM

sbuser 5 posts since
Jan 16, 2008

I recently started a computer consulting company and registered it as an LLC. I am thinking of working for a client pretty soon as a contractor.
As a single owner/member of the LLC and as the only working person, should I become an employee (W2) and pay myself salary or treat myself as an independent contractor (1099)? What kind of taxes do I need to pay in either case? Which one is more beneficial and allows me to pay less taxes?

If I hire employees in the future, should I do anything differenlty?

Please advise.

Thanks
Jay

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nishantk 13 posts since
Nov 9, 2007

1. Re: LLC Owner as an employee Jan 16, 2008 10:33 PM

Dear Sbuser,

Being employed by your own company is a common phenomena, specially as a software consultant. You could be 1099 or with w2.

Before your decide you must consider both the options with taxation perspective. This would vary a lot in different states. You must contact a qualified lawyer.

Please visit www.JusticeMadeSimple.com and see how you could lots of vital legal services with a very low monthly payment. You will have your own lawyer always ready to give answer to your legal questions and do much more.

Thanks and Regards,
Nishant Kumar

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Lighthouse24 2,396 posts since
Oct 10, 2007

2. Re: LLC Owner as an employee Jan 17, 2008 3:44 AM

From an IRS perspective, the money you take from your LLC is subject to Self Employment tax no matter how you get it, so there is no real tax advantage associated with any of the various method of paying yourself -- however, since a salary qualifies for asset exemption, that's generally what accountants recommend. Beyond that, the decision comes down to what state you're in, whether it has a state income and/or self-employment tax, and if so, how your state classifies an LLC for tax purposes (because that could make a difference in what you pay).

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LUCKIEST 7,912 posts since
Aug 6, 2007

3. Re: LLC Owner as an employee Jan 17, 2008 7:29 AM

Welcome to this website. You recently started a consulting company and registered it as an LLC.
Great, You now have a Federal I D Number. Do you have a Business and Marketing Plan??
Do you have or plan on hiring an Accountant?? In business you have to spend money to make money.
Generally, the I R S does not like " independent contractors (1099) "
Employees should be paid as employees with taxes deducted from their salaries.
Good luck, LUCKIEST

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sbuser 5 posts since
Jan 16, 2008

4. Re: LLC Owner as an employee Jan 20, 2008 11:14 PM

in response to: Lighthouse24

I forgot to mention that the company is registered in Virginia.
Thank you all for the replies.
I just wanted to find out from other people's experience, who have been through this already, before talking to a CPA.

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LUCKIEST 7,912 posts since
Aug 6, 2007

5. Re: LLC Owner as an employee Jan 21, 2008 6:49 AM

in response to: sbuser

One more item before talking to a CPA
SCORE has a FREE Online Seminar at "www.score.org " and one of the courses is
"Determining Your Business Legal Structure"
Again, Good luck, LUCKIEST

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BDS INC 131 posts since
Jul 20, 2007

6. Re: LLC Owner as an employee Jan 31, 2008 8:34 AM

Lighthouse makes a great point, the IRS will tax you the same way regardless. However, paying yourself via W2 will help you out in that your taxes will be taken out little by little.

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Manoj Gupta 12 posts since
Jan 28, 2008

7. Re: LLC Owner as an employee Feb 6, 2008 11:42 PM

Hi Sbuser,

Per IRS regulations, you do not need to take salary in case of an LLC. But whether you take salary or not, there will not be any tax effect as all of your income whether salary or otherwise, will be subject to self employment tax. That is why I always suggest most of my clients to form an S corp. In most cases for small businesses, S-Corp. is better than LLC. In case of LLC, 100% of net income is subject to self employment taxes (15.30%) while in case of S-Corp., the income subject to self employment tax is typically 30-50% of net income. I have illustrated this and the tax saving impact, on my website with the help of an example. Please see "FREE DOWNLOADS" page on my web site www.GlobalAccountingAssociates.com and download the excel file, review and give me your feedback, if any.

Hope it helped.

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dublincpa 165 posts since
Jan 29, 2008

8. Re: LLC Owner as an employee Feb 8, 2008 10:57 AM

in response to: Manoj Gupta

As a single member LLC, you and the the company are one and the same for tax purposes. You would file Schedule C and be taxed on the net profit on your 1040 unless you file Form 8832 electing to be taxed as a corporation. If you elect to be taxed as a corp, you can then file Form 2553 to be taxed as an S Corp.

A 1099 would be completely inappropriate in all cases. A W-2 would only be appropriate in cases where you have made the election to be taxed as a corp or S Corp.

If you make no election and your W-2 would cause or increase a loss, there is a difference in the amount of SE tax vs FICA taxes. Your credit for Social Security earnings would be greater than allowed and you would pay more taxes overall. This could also cause errors in the calculation and tax deduction of benefit for yourself.

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MacWizards 1 posts since
Dec 18, 2008

9. Re: LLC Owner as an employee Dec 18, 2008 1:58 PM

I have the same question for a different reason. We have a California based business and are trying to decide between a LLC and a S Corp.

My wife and I both work for the company. My wife has asthma. We want to start a group health insurance plan, as this is the only way to get coverage with a pre-existing medical condition (even one as minor as hers). A group health plan requires two employees.

If we start a S Corp we can both be employees and we qualify for a group health plan. If we start an LLC is appears I cannot be an employee. We would have only one employee and would not be able to start a group health plan.

Has someone explored this further than me? Can you confirm that an owner cannot be an employeed of a California LLC?

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This Question is Possibly Answered

LLC Owner as an employee

Jan 16, 2008 10:19 PM

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