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Ask HN: LLC taxation... Schedule C or Tax as corporation?

6 points by msencenb ↗ HN
I recently formed an LLC (launching within the next 2 weeks hopefully! I'm optimistic).

In any case I just had a free tax consultant presentation. The tax consultant service is too expensive for me even if I wanted to continue with that firm.

Here's the basic question: The tax consultant seemed to be leaning towards taxing the LLC as a corporation and paying out owner's distribution to save some taxes; however I have read that most LLC's just go with the Schedule C (I'm a single founder/owner). So what's the real scoop?

6 comments

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Scott_MacGregor
LLC tax returns can be very complicated--expensive. They file a partnership return. For best results you should find a CPA who does a lot of LLC/Partnership tax returns that you can afford and follow the CPA's advice.

I would be wary of doing what others do tax wise, or asking for online help, because everyone's situation is different. Be careful not to be Pennywise/Pound Foolish with this.

Kaizen
In all seriousness, if you think that paying for tax advice is too expensive, wait until you see how expensive it can be when you don't get that advice. I've "been there, done that, paid the outrageous IRS penalties and interest" (I'm assuming that you're a U.S. citizen).

I'm currently in the process of setting up a new company and opted to pay an accountant on a monthly basis. It's going to cost me $150/month to have him handle the books for my fairly small business and ensure that I make the right payments at the right time. I probably could gone have gone even cheaper by paying for him to do some initial setup for QuickBooks and handling much of the rest on my own (with his occasional help). When I hired him, I told him exactly what my business goals were and how much I expected to make. Then I had him tell me what was the best way to pay myself. Ask other business owners you know for recommendations, if you can't find someone who charges a rate that you can afford.

I've been told that the IRS can crack down on you if you don't pay yourself a "reasonable" salary (which would require paying Social Security and Medicare) and only/mostly pay yourself through distributions. I consider the $1800/year that I'll be paying as cheap insurance against getting hit with a 5-figure penalty some time down the road. Plus, I can spend more of my time focusing on income-producing activities.

msencenb
Thanks for the advice... I am certainly not against paying a good amount for tax advice. The reason I opted not to join the firm I had a the free consultant with was because it was going to cost me 1500 dollars up front + a monthly fee which I simply don't have right now since I'm a student who hasn't started his summer job yet.

Can you (or anyone) recommend a good accountant in the bay area?

Kaizen
The guy I'm using is in Nevada, and I just started with him. So, I don't know that I can really "recommend" him. But if you don't find someone local, and would like to get his contact info, just send me an e-mail (address is in my profile).
yourentwesplit
I have a LLC and fill out a Schedule C simply because at the end of the day there's very little profit to claim (I reinvest most of the money).

I've read some entrepreneurs claim that over $50,000 in Net Income should warrant conversion to a C-Corp but that's definitely not set in stone.

Of course, I don't know your situation (i.e. are you making any money yet?), so I can't comment fully. But if you're not wanting to pay for a tax accountant then sticking with a schedule C seems to make more sense in the interim.

cpr
IANAL, but it depends partially on how you're taxed.

If you're going to stay small, look into an S-corp status. That way you're only taxed once (personally) rather than twice or three times (depending on whether your state has a corporate income tax).