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BlakMagic
01-19-2011, 11:16 PM
Hello,

Wanted to run by a 'what if' sort of scenario for a business. Specifically wondering about how to best structure a business for tax purposes.

So here is the scenario, if you need additional information - as I am sure I will leave something important out - just ask :)

Sales: 400k
Business Expenses: 155k
Debt Payment: 70k

'Net' = ~175k , without some possible depreciation etc expenses.

Its a service industry business, and it will either be a LLC or a Sole Proprietorship, was leaning towards LLC for legal reasons, one operating partner and an 'owner'.

Anyways just looking for some general ideas on what I would run into, tax advantages between the two.

Also, the net, is without any salary for myself - and I was wondering for tax purposes what would be best to actually claim a salary or just have it be profits of the LLC?

I know this is pretty general, so ask pertinent questions as needed!

Thank you :)

Evan
01-25-2011, 10:44 PM
There are no tax differences between an LLC and a sole proprietorship, as they are taxed identically unless you elect to be taxed differently.

If you have a partner, then you are a partnership, not a proprietorship.

Your "net" is actually $245, your cash may be $175... but debt payments are not "expenses" -- only the interest portion.

As for salary, with either a proprietorship or partnership, you'd take "draws", or you could take a "guaranteed payment" in a partnership... There are some slight differences, but the tax impact is the same to you.

newbiesb2011
08-04-2011, 06:05 PM
Pay specific attention to how you take money out of the business as it could have tax implications. Taking draws, instead of a payroll check, may allow you to be taxed at a lower rate. However, you are going to want to have an accountant making sure you are following all applicable codes with either route that you go. It will be a learning experience, but one that you will pick up on quickly! Good luck!

newbiesb2011
08-06-2011, 11:35 AM
To expand on the payroll comment above, I did a little research. If you take a paycheck that will put you in a tax bracket 15 -35%. If you are the owner, these percentages can add up to a lot of money. However, draws are taxed as capital gains, generally 10%. This is a much smaller number and probably more manageable.

Evan
08-09-2011, 08:31 AM
If you take a paycheck that will put you in a tax bracket 15 -35%. If you are the owner, these percentages can add up to a lot of money. However, draws are taxed as capital gains, generally 10%. This is a much smaller number and probably more manageable.

As a sole proprietor, you do not put yourself on the payroll.

Further, draw's are not considered capital gains, which are not taxed at 10% even if they were.

SmallBman
08-24-2011, 03:29 PM
Is there a difference in the taxes if a business where to use a payroll processing company over in house payroll. With the recent downturn in the economy we have had to lay off workers which is making it hard to keep the payroll department busy even after layoffs in that department also. It is not just having a payroll department in house but also the health benefits, vacations, and sick days that all factor in as well and if there were tax savings as well then this might be something I will have to consider.

Evan
08-25-2011, 09:34 PM
Is there a difference in the taxes if a business where to use a payroll processing company over in house payroll.

If you outsource your payroll, you're paying a third-party to provide the service. Depending on the size of the company, it can offer considerable savings. But it's not for every business either.