Accounting & Bookkeeping & Small Business Forum

[Guest]

My client “owns” and LLC (new business). He hasn’t been taking any money from his business but now he asked me to add him to the payroll. The only advantage I see on doing so is that even if his business is not generating a profit, he will be paying Social Security. Am I missing something here?
If he doesn’t get pay through payroll, the other option is making withdrawals from the business checking and at the end of the year since he’s going to have a NOL anyway, he would not owe any taxes. Am I right?

Thanks in advance.

Ernesto

[Guest]

Ernesto: A LLC is a disregarded entity which means you file as a sole proprietor. A sole proprietor never receives a wage only a draw. You would debit owners draw and credit cash.

[Guest]

Well, since the business is treated as a sole proprietor for tax purposes (as the other post said), whether he withdraws money from the business or not, he must report the net profit or loss on Schedule C. As a sole proprietor, withdrawals are not deductible expenses, and would have no affect on the net profit/loss, and the payment of any Social Security due on Schedule SE.

[Guest]

He could also file an entity classification election on Form 8832 and to file as a corporation, then an S-Corp election. He could then operate the same way an S-Corp does, and pay himself a salary. If he does this, and the LLC has profit in excess of his salary, he will only pay SE tax on his salary.