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    8 Replies Latest reply on Jul 23, 2008 12:05 PM by Bean Counter

    Married and "partners" in business-LLC vs. Corp - Employees?

    earth8 Newbie
      My husband and I have a business that is LLC. We both are quite new at the setting up business part, and not at all new at our business. I am doing our 2007 taxes now and have a few questions as we are in the process of possibly changing our business structure (possibly from LLC to Corp in Georgia) by either both of us becoming employees of our business or only one of us becoming an employee and possibly hiring employees (or should we just hire independent contractors?) you can see, I'm on the fence as to which way to go.
      The reason I think it's best we do the employee route is because I individually filed Chapter 13 the later part of 2007, and I don't want this to effect our business or my husband. So, I think it would be best for at least me to become an employee of our business.

      So with that being said, I am being very careful in doing our taxes for 2007 because the business and EVERYTHING is under high scrunity by looking at all income, business expenses, etc. I really don't want our business to suffer because of my filing Chp 13, so I would like for the scrutiny to be moved totally on me and my expenses and income. Will someone please give me some basic advice that will help me complete our 2007 taxes and transition into employees vs. independent contractors, and LLC vs. Corp, and just me being an employee vs. us both being employees of our own company all for 2008 (starting April 2008)?

      I guess mainly what I would like to know is, how do we pay ourselves as owners of our own business considering self-employment taxes? OR Can we still be employees of our own LLC? If so, how does the whole 'partnership' work out? is it considered 50/50 or can we determine our own partnership levels? If only one of us become an employee, how is the 'employer' paid? I think I'm ok with having to pay payroll taxes, etc.

      Thanks so much for your help
        • Re: Married and "partners" in business-LLC vs. Corp - Employees?
          LUCKIEST Guide
          Married and "partners" in business, welcome to this web site.
          Everybody in business should have an Accountant, a Lawyer and an insurance Agent.
          If I was you and was being very careful in doing our taxes for 2007, I would
          1) file for an extension 2) look for an Accountant.
          It sounds like you need Professional help. Yes it costs money but over the
          long run it will save you both money and problems.
          Do you know about SCORE?? SCORE is FREE but does not help with taxes.
          Good luck, LUCKIEST
          1 of 1 people found this helpful
          • Re: Married and "partners" in business-LLC vs. Corp - Employees?
            DomainDiva Ranger

            You can pay yourself and your husband from the corporation, withhold all taxes and make tax deposits monthly, and then file your quarterly returns.

            However, it seems to me that the questions you have are more than just general and you are unsure of the actual structure of your business and how it should operate, ie: what you can and cannot do with an LLC. You need the advice of a great accountant and may want to consider an extension until you are sure of your situation and why you are doing what you are doing. If you change your corporate election there are also docs that must be filed with the IRS.

            1 of 1 people found this helpful
            • Re: Married and "partners" in business-LLC vs. Corp - Employees?
              nytaxguy Wayfarer
              An LLC is already a corporation. However as an LLC you can choose to report for tax purposes as a sole proprietor (Sch C) , partnership (Form 1065), an S-corp Form 1120-S or a c-corp (Form 1120). If this is not the first year tax returns have been filed that decision has already been made. You would have to get IRS approval to change any of the these. Depending on which you choose you may or may not be able to consider you or your wife employees. For s-corp or C-corp yes you can. For Sch C or Form 1065 no you can't. Sch C is only permitted for jointly held business if you and your wife both file Sch C for the respective shares of the business.
              1 of 1 people found this helpful
                • Re: Married and
                  earth8 Newbie
                  Thanks so much for your response.
                  Hmmmm, interestingly, one year we filed the form 1065. this year we filed sch C individually. Well, that looks like I've opened the gates of hell for the IRS to walk right through for auditing or penalty charges, eh?

                  What I really want is to get a structure of the business to know how we pay ourselves as owners and how we pay employees (that part is easy, it's the paying ourselves as owners that's got me stumped)...also because I've filed chpt 13, I don't want this to come against our business or my partner/spouse. If I need to go to employee status instead of owner (or partner), then I just need to know how to do that - do I need to get permission from IRS to do it, or do I 'sell' my 'share' (ha, that's funny!) to my spouse/partner and then get 'hired' ? :)
                    • Re: Married and
                      boshness Newbie
                      The answer is easy, but I'd suggest you get yourself an education on the structure, rules and regs, etc, of C-Corp, S-Corp, and LLC right away. You are going to need it for more than this question alone, and you could drown in a morass of confusion if you don't.

                      As owners of a C-Corp, you and your husband pay yourselves a salary, which is basically a W-2 wage. The corp is employing you to do the work it needs done; therefore you are employees. No "permission" is required from the IRS; however, you will have to become incorporated first and file the papers with the state, I hope you do realize. You will become officers of the corp, and the corp pays your salary. So in a sense, you are both owner, officer, and employees at the same time - get it?

                      The corp must pay all portions of the payroll taxes on you. This generally means that you will be deciding on how much you can be/should be paid as a net take-home figure, and then figuring your taxes from net to gross. QuickBooks can calculate this for you.

                      From your question, it seems there is so much you are not yet educated on regarding business, that it would behoove you to not only get yourself a good CPA, but take some serious time to learn the ropes for yourself. As I have found out for myself, a CPA does not have the time to teach you all you have to know - there is no substitute for your own study.

                      You also have a world of study before you regarding the multitude of pension plan opportunities out there for you, and if you may want to get a medical plan.

                      If you have no employees besides your spouse and yourself, there are different opportunities available to you than if you have employees.

                      Good luck to you!
                        • Re: Married and
                          boshness Newbie
                          Oh, and one more thing.

                          Your corp cannot pay you as independent contractors.
                          Which does not make much difference anyway, because the corp (in effect, your pocket) will have to pay all portions of the payroll tax anyway, just as an independent contractor does.
                          Though an independent contractor does not have to pay disability or unemployment tax, if I am not mistaken.
                    • Re: Married and "partners" in business-LLC vs. Corp - Employees?
                      Bean Counter Adventurer
                      Married with partners,
                      It seems like you are getting a great deal of advice on the subject.

                      It appears from the posts that you have filed a 1065 and a schedule C. Not sure which one came first. An LLC automatically defaults with two or more people as a partnership which should file the Form 1065. You can make an election if you are husband and wife to file schedule Cs. Each of you would have to file a schedule C. I believe it was last year that the IRS started allowing for this election.

                      Having said that. You may not want to make that election. Filing to schedule C automatically will make the two of you pay self employment taxes on the total income from the business.

                      If you remain an LLC filing the Form 1065 there is some planning techniques that can be implemented that might save you some tax dollars.

                      For example. Is you LLC member manged or manger manged? Are there any loans or guarantess against you or your wife on behalf of this LLC?

                      Typically if you work in the LLC , are the manager or guarantee debt, the IRS presumes that you should be subjuct to self employment.

                      Both you and your wife would need to amke estimated payments on a quarterly basis to avoid any underpayment penalties. A good CPA should be able to take your numbers and advise you on the amount of payment to keep you out of trouble.

                      In regards to your second paragraph. If you want your LLC to be an S-Corp or C-Corp, then you can make the election to do so. You can change on Form 8223. But be careful what you wish for and make sure you make the move for the right reasons.

                      In regards to your third paragraph. You can take draws from the partnership and pay in quarterly to the IRS. If you and you wife are both partners which sounds like the case, then you should not get a W-2 in general.

                      The partnership split questions is really up to you. There are some benfits to have a women owned business. Say 51/49 split.

                      Let me know if you have more specific questions and we can go from there.