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LLC, S corp—or Both? What is Best for your Business?

by Norris Law Group on December 19, 2014

Have you been considering whether creating a Limited Liability Company (LLC) or an S corp is the right choice for your business? Consider the case of Mike Turner, owner of Front Street Brokers, a real estate agency based in Boise, ID. INC magazine featured the story of how Mike came to the decision that combining an LLC with an S corp was the right choice for his business.

Front End Brokers deals in high-end homes and properties. Mike was advised to set up his real estate agency as an LLC, and he did so. But as the business grew, Mike was surprised by how he was paying to the IRS in taxes. He spoke to his accountant, who told him how he could elect to be taxed like an S corp while keeping his LLC intact.

Mike decided to pay a modest salary to himself and his wife, on which he also pays FICA and unemployment insurance. He also pays himself a monthly dividend from the company profits. But Mike found out that he must follow some rules in order to stay within the bounds of existing tax laws: “The rules are I must pay myself a realistic salary. I can’t pay myself minimum wage, and do the rest in dividends. But in my industry, the average salary is not that high, so I can still take a hefty amount via the dividends.”

The change in tax structure has provided Mike a federal tax savings between $6,000 and $8,000 annually. He says, “I feel I get the best of both worlds. For my small business I get all the legal benefits of running my small business through an LLC, but I can be taxed as an S corp, which saves me money at tax time.”

Speak with a tax advisor to determine the business entity that will provide your business with the best tax advantages. Then a skilled business law attorney can create the right business structure for you.

Attorney Graham Norris and his associates at the Norris Law Group serve the residents of Utah County, UT and throughout Utah, Wyoming and Idaho. Contact them today at 801-932-1238 or online for a free consultation.

 

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