Introduction:
Just closed the books on your extended tax returns? While it’s tempting to push your LLC taxes out of your mind for now, there’s a way you might be able to pocket more next year. Let’s dive in!
The Current Setup – Single-Member LLC:
Okay, here’s the deal. If you’re making money and you recently filed taxes as a Single Member LLC, you might be giving Uncle Sam a bigger cut than necessary. When you’re a Single Member LLC, it’s like you’re a sole proprietor, which means you’re on the hook for not just ordinary income tax, but also Self Employment taxes on all your profits.
What’s Self Employment Tax Anyway?
It’s basically your contribution to Social Security and Medicare. Normally, both the business and the employee split this cost. But if you’re a Single Member LLC or sole proprietor, you’re getting double-tapped, paying roughly 15% on all your business earnings.
Why Consider an S-Corp?
Here’s the fun part. With an S-Corp, you only pay employment tax on your salary. The rest? It avoids that extra taxation. That can add up to some nice savings!
The Breakdown:
Let’s say you pull in $100,000 in profit. As an LLC, you’re getting taxed twice on that whole amount. But with an S-Corp, if you take a $50,000 salary, the rest avoids that double dip.
But Wait, There’s More:
Switching to an S-Corp isn’t just a magic money saver. You’ve got to pay yourself what’s called a “reasonable salary.” It’s got to match what someone in your role would typically earn. Not sure about this part? Drop me an email at jeff@museminded.com and I’ll give you the lowdown.
Running Out of Time?
The year’s wrapping up, but if the numbers look good, making the S-Corp switch can still work in your favor. The beautiful thing about all of this is that switching to an S-Corp from an LLC is about as simple as it gets. The IRS allows you to simply elect to be taxed as an S-Corp and you don’t have to change your business name or anything. You’ll still have that little “LLC” at the end yet you’ll be operating as an S-Corp.
Quick Math Time:
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- First, what’s your annual profit looking like? If you’re above $20,000, you’re on the right track.
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- Next, figure out your salary. Need a hand? Just ask! Once you’ve got that, you can set up payroll on Gusto.com.
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- Oh, and there’s a form – the 2553. You can usually file it with your tax return. If that sounds confusing, hit us up!
Things to Remember:
Saving money is awesome, but switching to an S-Corp also means:
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- Dealing with payroll.
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- Spending a tad more time on bookkeeping.
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- Filing an extra business tax return.
Conclusion:
For folks selling online, becoming an S-Corp can mean more money in your pocket. But, remember, it’s not just about the savings. Balance the perks with the added tasks. And when in doubt, chat with an Amazon tax accountant!
Want to master your eCommerce finances with crystal-clear insight? Schedule a call with our team today!
