LLC as S Corp Cannot Pay Salary to an Owner?

by Andreastabasko. Posted on Sep 12, 2020    0    10


Hello all respected members of this site.

I am planning on opening a small business, but after reading dozens of blogs/articles, I still cannot understand - If a LLC owner chooses to be treated as S Corp for tax purposes - can he pay him self a salary? Or he just has to form a S Corporation from beginning and not an LLC?

On internet say say LLC owners/members CANNOT pay them self a salary, they only can take an owner's draw.

p.s. I just want to be able to pay myself and my partner a salary (50-60% from net income) to save on taxes.

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Than you all!


Comments

Apptubrutae 1

For LLCs electing s Corp tax treatment, the owners must be paid a reasonable salary in line with their participation in the business.

Disbursements beyond that can be treated as a no-payroll-tax owners draw.

However. This is ultimately a decision you should make in concert with a CPA. It is not the slam dunk decision it once was.

If you make too little money, an s Corp election may cost you more. If you make too much money, it may also cost you more. There is an s Corp sweet spot and it depends on a number of factors. If you DIY the decision you may end up paying more. Especially with two owners.

So please confirm with your CPA.

major1256 1

Your best bet is to consult a tax or law professional that understands your jurisdiction. But as a general rule, S-Corps are distinct from LLCs, and LLCs are established at the state level and not recognized for federal taxes. Since you'd be a partner in an LLC, you are not generally consider an employee and may not be eligible to receive salary. Depends on which state you're incorporated under. Consult a professional. It'll cost you less in the long run.

idriveadodgestratus1 4

Think of it this way - the “LLC” designation is a State entity. The S-Corp is not an entity type as far as the state is concerned (at least in NV). The S-Corp is an IRS designation only.

So you’re an LLC as organized through your state. And an S-Corp for tax purposes. A part of being an S-Corp is the requirement to pay a “reasonable wage” to owners.

Meanwhile, an LLC does not pay wages, but rather distributions, to its owners.

ralphy112 1

In NY you file a similar form to the IRS one to elect taxation as scorp for state taxes. You can file them simultaneously. I can’t imagine not filing state in NY also, but it may be possible.

NorseCelt137 2

My business is an LLC filing as a an S-Corp and I pay myself a salary via a payroll company. All legit and set up by my accountant (who plays strictly by the rules). I would think not paying yourself a salary via payroll (and paying taxes, SS, etc.) makes you a target for an audit.

th3mus1cman 2

I am pretty sure an LLC which chooses to be treated as an S Corp can function that way. My company's accountant handles it all but I am a 50% member in an LLC which files as an S Corp and I receive a W-2.

CCC_PLLC 1

This is correct

Apptubrutae 7

Not only can, but must.

An LLC taxes as an S Corp is required to pay active owners a “reasonable salary”.

openhighapart 7

You HAVE TO pay the owner a salary.

6553321 1

To expand on this answer, you actually don't want to pay yourself a salary because you can always make a distribution to yourself. But the IRS will come after you because a distribution does not require payroll taxes. So the IRS will come after you is your not paying yourself a reasonable salary according to the responsibilities and the income of the business.