Business Tax Preparation Chicago – How to save money on Payroll Taxes

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I just saved one of my clients over $11,000 in payroll taxes. He originally came to me just before the end of this tax season after having his return prepared by a well known mid-size downtown Chicago firm. He is a single member LLC with $120,000 of income for 2014. As a single member LLC your income is reported on a sole proprietor’s income tax return or Schedule C. Sole Proprietors pay extreme amounts of tax because all of their income is subject to both income and payroll taxes. Social Security and medicare being the payroll taxes in question run roughly 15% of your income or in this instance over $18,000 on $120,000 in income. One of the tax planning ideas we use is to elect an S-Status for an LLC. The legal status of the LLC remains exactly the same while the entity is taxed as if it were an S-Corporation. Why would we want to do this? Because corporation income is not subject to payroll taxes. Owners of profitable S-Corporations are required to have a reasonable salary. But they only pay payroll taxes on the declared salary rather than on the entire income of the business. So we did some research on what would be reasonable given this client’s job and the amount of time he devotes to the business. We came up with a more than reasonable salary of $40,000. So we elected an S-Status for the LLC, declared a salary of $40,000, put the income on an S-Corporation Income Tax Return, and saved him the payroll tax on $80,000. At 15% those payroll tax savings were in excess of $12,000. If you have a problem similar to this, we would love to help. I can be reached at Chris@AccountingSolutionsLtd.com Additional accounting articles can be found at www.AccountingSolutionsLtd.com