Should you be an S-Corp

  1. If your business is set up as an LLC, you are defined as sole proprietorship, unless you file to be taxed as an S-Corporation.
  2. LLC is a legal term, and LLC's can be taxed as sole proprietorships, partnership, or S-Corporations.
  3. A single member LLC or a double members LLC, unless you change something, you are taxed as a Sole Proprietorship or partnership.
  4. Your net profit is first subject to social security 12.4% and Medicare taxes 2.90% because as a self-employed you are responsible for paying both the employer and employee side.
  5. "Self-Employment Taxes" or "SE Taxes" or FICA are the combination of social security taxes & Medicare.
  6. Your net profits will "flow through" to your personal 1040 tax return, and you'll owe Medicare on all wages and Social Security taxes on all income up to the social security limit, which changes often according to congress.
  7. After 15.30 % Social Security and Medicare you will then pay state and federal income taxes.
  LLC VS S-Corp
Net Income 100,000.00   50,000.00 / 50,000.00
Social Security 12.4% 12,400.00   6,200.00
Medicare 2.9% 2,900.00   1,450.00
Total SE Tax Due 15,300.000   7,650.000
Total SE Tax Saving -   7,650.00