• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Edmundson CPA, PLLC

Formerly Edmundson & Company, CPAs

  • Home
  • About Us ▼
    • About Us
    • Hours
    • Drew Bio
    • Policies
    • Contact us
  • Services ▼
    • Tax planning
    • Accounting
    • Tax Preparation
    • Consulting
  • Newsletters
  • Blog
  • Client forms
  • Links
  • Secure Portal
  • Sitemap
You are here: Home / Business / LLC often best for business on side?

May 22, 2014 By

LLC often best for business on side?

So you are employed full-time and want to start a business on the side. You also want some liability protection and in your full-time job make close to or over the Social Security wage limit (i.e. you will owe little or no more Social Security tax on your side business income).

A Limited Liability Company (LLC) may be your best choice. As its name says, your liability is limited compared to the liability you would have as a sole proprietor. Not all types of businesses receive the same liability protection and an LLC cannot typically protect you against liability for your own personal intentional acts. You should check with your attorney so you understand the amount of liability protection you will get.

Another advantage of a single member (owner) LLC is that by default it is ignored for tax purposes and is considered (for most purposes) as just another activity of its owner. So for a single member LLC (SMLLC) owned by a person, the default is to tax the SMLLC as a sole proprietorship. No separate income tax filing is required, just one or more additional forms added to your personal 1040. For a corporation, the SMLLC income and expenses are typically just added to all the other activities of the corporation and reported on the same forms.

If you choose to operate as a multiple member LLC, a corporation, or a partnership then the entity has to file a separate tax return. There are a few limited exceptions to the separate filing requirement for a multiple member LLC when the only owners are spouses but this post will not address them. In addition, if you choose to operate as a corporation, then the corporation will need to put you on payroll and pay you a reasonable salary. This means payroll tax returns with IRS, W-2 filing with Social Security, state payroll tax filings and perhaps workers compensation insurance depending on your state. If you have other employees, adding yourself is not a lot of extra work but if it is just you then look forward to a lot of additional paperwork and additional taxes.

Your corporation has to withhold and match your Social Security taxes as though it is your only employer. So if you are already paying the maximum Social Security taxes, creating a corporation forces the company to pay extra Social Security taxes in its match. You get your additional Social Security taxes credited against your income taxes but the company does not get its match back.

If your business is your main livelihood, a SMLLC taxed as a sole proprietorship may not be your best choice. However, one of the beauties of an LLC is that IRS allows an LLC to elect to be taxed like a corporation. So your SMLLC can start out taxed as a sole proprietorship and later change to be taxed like a corporation. The election to be taxed as a corporation can be arranged to be tax-free and it usually is tax-free. On the other hand, starting as a corporation and then wanting to switch to an LLC not taxed as a corporation is a taxable event. How much tax depends on your circumstances.

Related

  • Electing to be taxed as a corporation
  • May 29, 2014
  • In "Business"
  • One reason to form an LLC instead of a Corporation
  • February 7, 2014
  • In "Business"
  • IRS warning for the "Dirty Dozen Tax Scams"
  • February 25, 2014
  • In "Tax"

Filed Under: Business, Tax Tagged With: form of business, liability protection, LLC

Primary Sidebar

Recent Posts

  • Tax Season in the Era of the Coronavirus
  • Foreign financial filing due (FinCen 114)
  • NC extensions denied in error
  • Forms 1099 due by 03/31/2016!
  • Valuing noncash contributions

Categories

Tags

2014 ACA business taxes C Corporation Charitable contributions corporation Donations due dates Electronic filing Electronic payments entity choice estate expiring tax provisions filing statistics FinCen 114 Foreign form of business healthcare Income tax organizer Individuals IRA IRS IRS waste liability protection LLC mileage NC taxes new taxes Obamacare occupancy taxes Our firm Pay IRS Preparers Sales taxes SBA S Corporation signature Tax deductions tax extenders tax planning vehicle taxes where's my refund will withholding year-end

Edmundson CPA, PLLC

102 Commonwealth Court
Suite J,
Cary, NC 27511-4437
Phone: (919) 460-9966
Fax: (919) 380-0010
Email: info@nccpa.com

Footer

Edmundson CPA, PLLC

102 Commonwealth Court
Suite J,
Cary, NC 27511-4437
Phone: (919) 460-9966
Email: info@nccpa.com

Hours

Office hours

Search

Categories

  • Business
  • Financial
  • Firm
  • QuickBooks
  • Tax
FACEBOOK ·TWITTER ·LINKEDIN Copyright © 1998–2021 · Terms and conditions