Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Ask HN: Series LLC vs individual LLCs?

news.ycombinator.com

Post reply on HN
Print view View original

11–12 of 12 posts

Re: Ask HN: Series LLC vs individual LLCs?

#11

Post by tptacek »

nwilkens wrote: post #7

You may want to consider starting an S-corp (mainly for the self-employment tax savings) to be used as the management company. You can then create individual LLCs as you see fit. Your S-corp will invoice the LLC's for a management fee; and you pay yourself out of the S-corp. Be sure to recognize the tax benefits of distributions from your S-corp.

There are horror stories about people who have tried to recategorize their income as distributions on top of nominal below-market salaries in order to avoid self-employment tax. It doesn't seem worth it.

Re: Ask HN: Series LLC vs individual LLCs?

#12

Post by camz »

rprasad wrote: post #8
camz wrote: post #5

I'm a tax accountant and I can give you some insight into the tax aspect of the equation. 1. I don't think that an LLC is the correct legal entity you should be considering for your consulting arm because of self-employment tax. Many people forget that self employment tax is an expensive cost that could be avoided. You should be incorporating an S Corp to plan around the 15.3% tax. You're getting all the same benefit…

1. Not entirely correct. In most states, S Corporations pay more taxes on their income than do LLCs. Also, you don't avoid paying the self-employment tax; you just pay it in a different way, as payroll and other taxes through the S Corporation. In many states, taxes incidental to the employee relationship will end up exceeding the self-employment tax. Moreover, wages paid through an S Corporation cannot be characteri…

I think I'm having a difficult time understanding your logic. An S-Corporation is a passthrough tax entity that doesn't pay tax on a corporate level. The income is paid on the 1040 tax return with a K1. Thus, I don't see how the S-Corp would lead to a tax that is any different than a LLC. Its effectively the same tax treatment in this case except that there is the ability to lower SE Tax.

By paying a reasonable wage to the owner, the net income would be distributed as a dividend which is not self-employment income and thus would be exempt from SE Tax.

Also, wages paid to an owner/employee of an S-Corporation is not required to pay FUTA (unemployment) and etc, thus the only tax that you'd be required to pay is FICA and Medicare just like everyone else.

Clearly, the S Corp has a number of restrictions which ties in well with the fact that an S Corp is a "small corporation" But, for small or new companies that aren't getting major funding, this is a great option.

Post reply on HN