Discussion:LLC as S- Corp SE Tax
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Discussion Forum Index --> Advanced Tax Questions --> LLC as S- Corp SE Tax
Discussion Forum Index --> Tax Questions --> LLC as S- Corp SE Tax
BrooklynNYcpa (talk|edits) said: | 24 June 2008 |
| Client has single member LLC that had 90k of net income in 2007. To help with SE for 2008 we were going to setup S-Corp but his attorney is advising against it due to the LLC being the holder of employment non-compete agreements and service contracts.
Question is should he elects S-Corp status for the SMLLC and take a reasonable payroll ? I'm guesing yes - as it would then file 1120S. I never dealt with this hybrid and am apprehensive about it. | |
| 24 June 2008 | |
| you want to turn non-compete into self-employment income or salary subject to FICA? | |
BrooklynNYcpa (talk|edits) said: | 24 June 2008 |
| I don't want him to be subject to FICA on the entire 90k. He has an employee working for him that signed a non-compete. He's nervous the employee will find a loophole and leave to compete with him. | |
| 24 June 2008 | |
| Many times there is a language in the non-compete that will allow for an assignment. Does that exist?
Service Contracs can also be assigned to another entity as long as the warm-body behind it is the same and ample notice is given to the vendors. This is something a contracts attny could advise u on. There should be no issue finding such attorneys in Buuro Paak. | |
| June 24, 2008 | |
| OR, in this case, yeah, you make the S election. One other possible, find another LLC member, and then bifurcate the interests. | |
BrooklynNYcpa (talk|edits) said: | 24 June 2008 |
| Thanks
I agree - I would even make the S- Corp the owner of the LLC but the atty disagrees. | |
BrooklynNYcpa (talk|edits) said: | 24 June 2008 |
| JR - Thanks but what are you talking about? | |
| 24 June 2008 | |
| Correct me if I am wrong, but was under the impression that LLC electing to be taxed as corp or S-corp has zero impact on the legal status of the underlying entity, ie the LLC. Since the LLC is the state-chartered legal entity, and remains so after the tax election, there is no change in the legal entity for contract assignment purposes. Think you should make sure the attorney understands that you want to elect S status for tax, but that the legal entity LLC will remain. -Bob | |
| June 24, 2008 | |
| Exactly. Two choices: check the stupid box and elect S status treatment of the LLC, preserving the legalities while altering the taxing. Or, find another LLC member and bifurcate or split the ownership interests. Hit the yellow search box with the b word for more. You'd need another member because a single member is disregarded unless you pick corp status, and therefore couldn't split the interest. | |
