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by karmajunkie
1647 days ago
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i did it for years. You don’t pay employment taxes on dividends/distributions, just income taxes. so you’re still paying taxes on those but you’re saving 7.5% on the employment taxes side. maybe “ass-tons” is over selling it but coupled with business deductions you can take you can save quite a bit. the IRS may take a closer look at you if you’re taking less than half your revenue in W2 income but otherwise it’s perfectly legitimate. [edit: the S-corp election is key. look into that.] |
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Did you have multiple employees? I think that changes everything, we're talking about a solo business owner in this case.
All profits from a single employee LLC get treated as income tax. Here's a quote from Intuit[0]:
> Single-member LLCs are disregarded entities. A disregarded entity is ignored by the IRS for tax purposes, and the IRS collects the business’s taxes through the owner’s personal tax return. Single-member LLCs do not file a separate business tax return.
This also applies to S-corp election. It's why a few accountants that I've spoken with have suggested that creating an LLC for tax savings as a solo business owner isn't worth it. It just complicates things for no real benefit. You have reduced liabilities but that's separate from saving money on taxes.
As you mentioned it would be a good idea to give yourself a reasonable salary as an LLC employee to not get audit by the IRS which is why you can't expect to hire a friend for $10 / year to instantly make yourself a multi-employee business.
[0]: https://quickbooks.intuit.com/r/structuring/the-single-membe...