S Corporation vs. LLC Partnership Logistics

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Rangeros
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S Corporation vs. LLC Partnership Logistics

Post by Rangeros » Sun Sep 23, 2018 7:45 pm

I was reading this post (https://www.whitecoatinvestor.com/llc-f ... -an-s-corp) on why the author decided to file as an S-corp in 2017. I am following in his footsteps and doing the same for 2019, but looking to get some advice on the logistics of payroll mostly.

I am looking for advice on several things. I am anticipating net revenue of around 150k for a health policy consulting business. I will pay myself a salary of $75k (median for an economist on BLS) while deferring 19k as an employee to a solo 401k. I am also planning to contribute on the employer side the max amount, given the salary of 75k, I believe it is 25%, so another 18,750 as profit sharing (and avoiding FICA). I would also like to purchase health/dental for myself, which I am estimating at another $5k for high deductible plans.

By my accounting, I will have the following tax liability on the employee side

W2 wages: 75,000

Pre-tax deferral: 19,000

FICA: 5,737.50

Federal (56,000 taxable @ 24%): 13,440

Total Tax: $19,177.50



And on the employer side.

Net Income: $150,000

Wages: 75,000

401k Profit Sharing: $18,750

Health Benefits: 5,000

Employer paid FICA: 5,737.50

Net distribution to shareholders: $45,512.50

When I add the marginal tax on the distribution, I get another 10,923 in tax (assuming 24% marginal rate).

Total Tax paid from 150,000 Net Income: 5,737.50 Employee FICA, 5,737.50 Employer FICA, 13,440 Federal Tax on wages, 10,923 Federal Tax on distributions= $35,838 or 23.89%

If I didn’t elect to be treated as an s corp and earned all of this as an LLC partnership. I believe the taxes would be as follows:

150,000 Wages

Social Security (Max taxable 128,700): 15,958.80

Medicare: $4,350

Employee 401k contributions: 19,000

Profit Sharing 401k contributions: 37,000

Can’t deduct Health Insurance because eligible through wife’s work

Deductible half of self employed: 10,154.40

Federal Tax (Taxable Income= 83,854.6) @24% marginal= 20,122.94

Total Tax= FICA 20,208.8 + Federal Tax 20,122.94= 40,331.74

Tax Savings= 40,331.74 (LLC Partnership)- 35,838 (S Corp)= $4,493.74

However, I would like a really simple way to do payroll. I don’t really want to have a payroll service to force myself to learn how this works. Any recommendations for payroll on your S-Corp? I am planning to pay myself 4 times a year for my salary and distributions as needed (elected to be s corp in 2019). It should be really simple, but I am going to also pay for dental/medical as an employer paid benefit and the profit sharing component of the solo 401k to avoid FICA on as much as I can. Any recommendations? I’d prefer to do it myself to learn, but not sure if I am over my head here. What records would I need in the event of an audit? Thanks for any advice.

Greenman72
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Re: S Corporation vs. LLC Partnership Logistics

Post by Greenman72 » Sun Sep 23, 2018 10:02 pm

Easiest way to do payroll? Hire a payroll company.

Trust me—you don’t want to do your own payroll tax. I am a CPA. I have a lot of s-Corp clients. Many of them have said, “I can do my own payroll.” None of them have ever succeeded.

furikake
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Re: S Corporation vs. LLC Partnership Logistics

Post by furikake » Sun Sep 23, 2018 10:53 pm

BofA offers free payroll if you bank with them, for up to 4 employees (if it hasn't changed). I'm not sure if you can deduct your health/dental benefits as the employer on your payroll if you're getting individual plans, unless you're talking about group plans.

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Lieutenant.Columbo
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Re: S Corporation vs. LLC Partnership Logistics

Post by Lieutenant.Columbo » Mon Sep 24, 2018 12:47 am

OP
If you decide to elect S Corp taxation, I recommend you use Patriot Software's Full Service Payroll. But I recommend you read through the comments & links in this BHs Forum Topic on "SCorps and Tax Reform" as it might cause you ponder if you really should/want to elect S Corp status.
L.C.

Edited 1-Oct-2018 to correct second link.
Last edited by Lieutenant.Columbo on Mon Oct 01, 2018 5:44 pm, edited 1 time in total.
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

theplayer11
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Re: S Corporation vs. LLC Partnership Logistics

Post by theplayer11 » Mon Sep 24, 2018 7:19 am

Greenman72 wrote:
Sun Sep 23, 2018 10:02 pm
Easiest way to do payroll? Hire a payroll company.

Trust me—you don’t want to do your own payroll tax. I am a CPA. I have a lot of s-Corp clients. Many of them have said, “I can do my own payroll.” None of them have ever succeeded.
I do mine, and am 99% sure I do them correctly..thanks to help and input from this forum. :D

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BoglePaul
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Re: S Corporation vs. LLC Partnership Logistics

Post by BoglePaul » Mon Sep 24, 2018 8:04 am

I run a small business. My earliest and best advice was to get a full service payroll company. If starting out, just use Intuit QB Online with Intuit Full Service Payroll. I reiterate, best advice I received was to get a payroll service company, even with 1 employee. Every other small company I have met along the way uses a payroll service company. Seriously, just work one extra billable hour per month and it pays for the payroll service company.

Rangeros
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Re: S Corporation vs. LLC Partnership Logistics

Post by Rangeros » Mon Sep 24, 2018 8:36 am

theplayer11 wrote:
Mon Sep 24, 2018 7:19 am
Greenman72 wrote:
Sun Sep 23, 2018 10:02 pm
Easiest way to do payroll? Hire a payroll company.

Trust me—you don’t want to do your own payroll tax. I am a CPA. I have a lot of s-Corp clients. Many of them have said, “I can do my own payroll.” None of them have ever succeeded.
I do mine, and am 99% sure I do them correctly..thanks to help and input from this forum. :D
Do you have any advice for doing this yourself? What records do I need to keep? Do you account for health insurance/solo 401k contributions?

mw1739
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Re: S Corporation vs. LLC Partnership Logistics

Post by mw1739 » Mon Sep 24, 2018 9:01 am

I think you need to put your numbers into TaxCaster or similar program to get an accurate result, or have a CPA run the numbers for you. Offhand I see that you're excluding any income your wife earns, as well as standard/itemized deductions and personal exemptions from your calculation.

theplayer11
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Re: S Corporation vs. LLC Partnership Logistics

Post by theplayer11 » Mon Sep 24, 2018 12:37 pm

Rangeros wrote:
Mon Sep 24, 2018 8:36 am
theplayer11 wrote:
Mon Sep 24, 2018 7:19 am
Greenman72 wrote:
Sun Sep 23, 2018 10:02 pm
Easiest way to do payroll? Hire a payroll company.

Trust me—you don’t want to do your own payroll tax. I am a CPA. I have a lot of s-Corp clients. Many of them have said, “I can do my own payroll.” None of them have ever succeeded.
I do mine, and am 99% sure I do them correctly..thanks to help and input from this forum. :D
Do you have any advice for doing this yourself? What records do I need to keep? Do you account for health insurance/solo 401k contributions?
I use Quickbooks enhanced payroll. There is certainly a learning curve. It comes down to if you have the time to put in the effort. If not, then use a payroll company.

gilgamesh
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Re: S Corporation vs. LLC Partnership Logistics

Post by gilgamesh » Mon Sep 24, 2018 1:48 pm

Will you be eligible for the additional 20% QBI/199A deduction as well?

P.S: You also have to look at additional expenses, when you consider this. S-corp tax returns costs more. Payroll service charge. Unemployment and workers comp insurance costs...there might be others.
Last edited by gilgamesh on Mon Sep 24, 2018 1:57 pm, edited 1 time in total.

MichCPA
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Re: S Corporation vs. LLC Partnership Logistics

Post by MichCPA » Mon Sep 24, 2018 1:53 pm

Greenman72 wrote:
Sun Sep 23, 2018 10:02 pm
Easiest way to do payroll? Hire a payroll company.

Trust me—you don’t want to do your own payroll tax. I am a CPA. I have a lot of s-Corp clients. Many of them have said, “I can do my own payroll.” None of them have ever succeeded.
+1 I wholeheartedly second this comment.

Rangeros
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Re: S Corporation vs. LLC Partnership Logistics

Post by Rangeros » Mon Sep 24, 2018 3:13 pm

gilgamesh wrote:
Mon Sep 24, 2018 1:48 pm
Will you be eligible for the additional 20% QBI/199A deduction as well?

P.S: You also have to look at additional expenses, when you consider this. S-corp tax returns costs more. Payroll service charge. Unemployment and workers comp insurance costs...there might be others.
We wont be eligible for the 199A because we are over income limits. I guess marginal is more like 35%

gilgamesh
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Re: S Corporation vs. LLC Partnership Logistics

Post by gilgamesh » Mon Sep 24, 2018 3:56 pm

Rangeros wrote:
Mon Sep 24, 2018 3:13 pm
gilgamesh wrote:
Mon Sep 24, 2018 1:48 pm
Will you be eligible for the additional 20% QBI/199A deduction as well?

P.S: You also have to look at additional expenses, when you consider this. S-corp tax returns costs more. Payroll service charge. Unemployment and workers comp insurance costs...there might be others.
We wont be eligible for the 199A because we are over income limits. I guess marginal is more like 35%
Even if you are one of the "non-eligible" service industry, you may get the deduction. Its based off of your 'taxable income'...you get the full deduction if you are MFJ and 'taxable income' is $315k or less, and if single half of that. For MFJ the deduction goes down over the next $100k and if single over the next $50k.

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Lieutenant.Columbo
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Re: S Corporation vs. LLC Partnership Logistics

Post by Lieutenant.Columbo » Mon Sep 24, 2018 9:21 pm

gilgamesh wrote:
Mon Sep 24, 2018 3:56 pm
Even if you are one of the "non-eligible" service industry, you may get the deduction.
In our previous conversation about S Corp and the Tax Reform and the QBI deduction, I never understood what "non eligible" means in this context. Non eligible for what, since "non eligible" industries may still get the deduction? Thank you
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

gilgamesh
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Re: S Corporation vs. LLC Partnership Logistics

Post by gilgamesh » Tue Sep 25, 2018 8:57 am

Lieutenant.Columbo wrote:
Mon Sep 24, 2018 9:21 pm
gilgamesh wrote:
Mon Sep 24, 2018 3:56 pm
Even if you are one of the "non-eligible" service industry, you may get the deduction.
In our previous conversation about S Corp and the Tax Reform and the QBI deduction, I never understood what "non eligible" means in this context. Non eligible for what, since "non eligible" industries may still get the deduction? Thank you
I might be using the wrong term. But basically the 199A deduction is for small businesses. However some types of businesses (Service industry) is not eligible , IF they earn taxable amounts higher than what I mentioned earlier. There are some other testing too, like 50% of W2, however even the W2 test is exempted if it falls within the taxable income thresholds mentioned earlier.

IOW, as long as a small business has taxable income within the threshold, they are all eligible. On,y above that threshold do the question of eligibility arises...

That’s my understanding of things...but as you know there are lots of information still unknown and everyone is waiting for the IRS clarification (the first clarification didn’t answer many of the unknowns).

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Lieutenant.Columbo
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Re: S Corporation vs. LLC Partnership Logistics

Post by Lieutenant.Columbo » Tue Sep 25, 2018 8:25 pm

gilgamesh wrote:
Tue Sep 25, 2018 8:57 am
Lieutenant.Columbo wrote:
Mon Sep 24, 2018 9:21 pm
gilgamesh wrote:
Mon Sep 24, 2018 3:56 pm
Even if you are one of the "non-eligible" service industry, you may get the deduction.
In our previous conversation about S Corp and the Tax Reform and the QBI deduction, I never understood what "non eligible" means in this context. Non eligible for what, since "non eligible" industries may still get the deduction? Thank you
I might be using the wrong term. But basically the 199A deduction is for small businesses. However some types of businesses (Service industry) is not eligible , IF they earn taxable amounts higher than what I mentioned earlier. There are some other testing too, like 50% of W2, however even the W2 test is exempted if it falls within the taxable income thresholds mentioned earlier.

IOW, as long as a small business has taxable income within the threshold, they are all eligible. On,y above that threshold do the question of eligibility arises...

That’s my understanding of things...but as you know there are lots of information still unknown and everyone is waiting for the IRS clarification (the first clarification didn’t answer many of the unknowns).
gilgamesh,
Does your reply above mean that the Non-Service industry gets the full QBI deduction Even IF the taxable income is above the thresholds you mentioned?
In other words, do the thresholds apply Only to the Service industry?

Note: I'm in the (health) service industry, so I know the thresholds apply to me, but I'm just trying to make sure I understand. Thank you for your explanations.
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

Spiral
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Re: S Corporation vs. LLC Partnership Logistics

Post by Spiral » Tue Sep 25, 2018 11:57 pm

They are clarifying the 199A deduction definitions. The thing about using a payroll service is because the penalties are big if you miss a payroll tax deposit or return filing. When starting a business you do not want to get bogged down in compliance details, but focus on operations.

gilgamesh
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Re: S Corporation vs. LLC Partnership Logistics

Post by gilgamesh » Wed Sep 26, 2018 10:05 am

Lieutenant.Columbo wrote:
Tue Sep 25, 2018 8:25 pm
gilgamesh wrote:
Tue Sep 25, 2018 8:57 am
Lieutenant.Columbo wrote:
Mon Sep 24, 2018 9:21 pm
gilgamesh wrote:
Mon Sep 24, 2018 3:56 pm
Even if you are one of the "non-eligible" service industry, you may get the deduction.
In our previous conversation about S Corp and the Tax Reform and the QBI deduction, I never understood what "non eligible" means in this context. Non eligible for what, since "non eligible" industries may still get the deduction? Thank you
I might be using the wrong term. But basically the 199A deduction is for small businesses. However some types of businesses (Service industry) is not eligible , IF they earn taxable amounts higher than what I mentioned earlier. There are some other testing too, like 50% of W2, however even the W2 test is exempted if it falls within the taxable income thresholds mentioned earlier.

IOW, as long as a small business has taxable income within the threshold, they are all eligible. On,y above that threshold do the question of eligibility arises...

That’s my understanding of things...but as you know there are lots of information still unknown and everyone is waiting for the IRS clarification (the first clarification didn’t answer many of the unknowns).
gilgamesh,
Does your reply above mean that the Non-Service industry gets the full QBI deduction Even IF the taxable income is above the thresholds you mentioned?
In other words, do the thresholds apply Only to the Service industry?

Note: I'm in the (health) service industry, so I know the thresholds apply to me, but I'm just trying to make sure I understand. Thank you for your explanations.
With some small businesses, it’s still not clear whether they fall under the “service industry” category or not.

It’s not just the taxable income threshold. There is the W2 test too...there might be others. But, it’s very clear some/many small businesses will get the full 20% deduction even if their taxable income is well above the threshold - that is certain (as long as they pass the various restrictions).

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