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4 Replies Last post: Apr 11, 2009 10:46 AM by phanio

Managing Corp Expenses for an LLC

Apr 7, 2009 11:21 AM

TechGuy_MD 2 posts since
Jan 7, 2009

Currently, the owner of a self employed IT consulting firm, I am the only salaried employee while I have identified solid corp expenses my Tax consultant is concerned that my income is not large enough ( approx 50K ) and not paying enough in Fed/Maryland State taxes. I am taking additional drawer to compensate for my personal expenses.

Here is a sample breakdown based on 10K monthly revenue

Employee salary: $3846.00

Taxes: $1,300

Cell / internet phone: $200.00

Meals and entertainment: $200.00

Web hosting - 50.00

Training - 150.00

personal drawers - $1000.00

Should I increase my salary or expect to pay significant amount in taxes in the next year?

Thanks

Tech Guy

Tags: business, book_keeping, small_business, tax, accountant_financial, budgeting, invoice, accounting Report as inappropriate

dublincpa 165 posts since
Jan 29, 2008

1. Re: Managing Corp Expenses for an LLC Apr 7, 2009 4:36 PM

Did you make a C or S Corp election? Those are the only instances where your salary could be too low.

Assuming that you have not made a C or S Corp election and ignoring the question of the validity of issuing a W-2 to the sole member of a single member LLC that has not made a C or S Corp election, I think what your tax pro is worried about is that you will have big tax bill and then will have to pay penalties for not having enough paid in to the feds and state. All of the net profits after W-2 and expenses will flow to you as self employment income.

Based on the numbers you provided, your combined W-2 and SE income will be about $112,000 for the year. Nearly all of that will be subject to FICA or SE tax of 15.3% adding up to $16,500 PLUS federal and state income taxes.

If you think I missed the mark or have incorrect assumptions, please advise.

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TechGuy_MD 2 posts since
Jan 7, 2009

2. Re: Managing Corp Expenses for an LLC Apr 7, 2009 4:42 PM

in response to: dublincpa

Great information! Thanks I have completed fIRS orm 2553 in order that my LLC will be taxed as a S-Corp not sure how that will change the content of your recommendations. In any event, Thanks again,

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dublincpa 165 posts since
Jan 29, 2008

3. Re: Managing Corp Expenses for an LLC Apr 7, 2009 4:54 PM

in response to: TechGuy_MD

I guessed wrong. Add it to the list. The flow thru profit will not then be subject to SE or FICA tax.

Separately, the IRS would have a hard time classifying $50K+ as being unreasonably low officer comp. Seems like the tax guy is trying to CYA himself (not a criticism). There will always be an agent that thinks less than that all of the earnings being W-2d is unreasonably low, but if the argument is lost at $50K, the tax person just didn't fight hard enough. That said. There is a cost to having the tax pro fight.

Now for my CYA:

In compliance with U.S. Treasury Department Regulations, we are required to
advise you that unless otherwise specifically indicated, any federal tax
advice in this communication (including any attachments) is not intended or
written to be used, and cannot be used, by anyone for the purpose of
avoiding penalties that may be imposed. Further, this communication is not
intended or written to support the promotion or marketing of any of the
transactions or matters it addresses.

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phanio 483 posts since
Apr 7, 2009

4. Re: Managing Corp Expenses for an LLC Apr 11, 2009 10:46 AM

Very hard to predict what will happen at the end of the year. If you are worried about taxes - and are considering buying additional equipment - now is the time under Section 179.

Business Money Today

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Managing Corp Expenses for an LLC

Apr 7, 2009 11:21 AM

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