Like LLCs-as-C-corporations, LLCs-as-S-corporations can make cash payments to owners via wages or dividends. Any wages or salaries paid must be fair -- e.g., the industry standard -- and not an amount artificially high or low. The LLC is also responsible for FICA (Federal Insurance Contributions Act) taxes, such as Medicare and Social Security and other withholding requirements.
One final point about LLCs as S corporations, which is also true for LLCs as C corporations, is that they can issue stock options and ownership plans, which may be beneficial. But tax law also requires both types of corporations to follow more procedures, such as creating bylaws, holding formal board meetings, taking accurate minutes and so forth.
Taxes are never a simple issue, nor is determining the best structure for your business. If you think forming an LLC will save you money, consult with an expert such as your accountant, who will be able to help guide you.
Originally Published: Dec 18, 2014
Author's Note: How LLC Taxes Work
As a self-employed writer married to an accountant, I let my hubby figure out how I should file my taxes. He went with sole proprietorship, but now I'm wondering if I should create an LLC. We'll have to revisit this issue.
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