LLC save on SS taxes
I have a client who makes approx. 300k under a sole prop. Is there anything in the tax code that says if he forms a LLC or LLP that his SS tax will be capped and not on the whole 300k?
Thank you,
Douglas
I have a client who makes approx. 300k under a sole prop. Is there anything in the tax code that says if he forms a LLC or LLP that his SS tax will be capped and not on the whole 300k?
Thank you,
Douglas
Permalink Submitted by mk foss on Sat, 2014-10-25 01:22
An LLC can elect to be taxed as a corporation. If that election is made, the SS tax applies to the “corporate” salary and not the entire LLC profit. In general, there is no cap with a single member/sole proprietor LLC.
Permalink Submitted by Douglas Bauerband on Mon, 2014-10-27 15:30
but isn’t there a limit of $113k that SS can tax in a corp?
Permalink Submitted by mk foss on Tue, 2014-10-28 18:05
The SS tax portion of the SE tax imposed on a sole proprietor is capped at $113K or so but the Medicare tax goes on forever. With an LLC that has elected to be taxed as a corporation the SS and medicare taxes apply to the salary only and not to the entire profit.