What is the difference between LLC and S Corps in the way that wages must be distributed?
In this audio snippet, you'll hear about:
- With the LLC, all earnings that are due to a partner must be distributed directly, and he must pay social security or self employment tax on the entire amount of earnings
- S Corporation, that may not be the case. Portion of earnings might be categorized as compensation
Audio Transcript
Travis:
What is the difference between
LLC and S–Corps in the way that wages must be distributed?
Yosef:
Well, with the LLC all earnings that are due to a partner can be
distributed directly. And a partner, if this is an active investment,
will have to pay Social Security Tax, or Self–Employment Tax on the
entire amount of earnings.
Travis:
OK.
Yosef:
In the S–Corporation setting, that may not be the case. The recent
preferential treatments, whereby a portion of the earnings can be
categorized as compensation. We got portion of earnings that will be
subject to Self–Employment Tax, while the remainder will be categorized
as distributions and only subject to Income Tax.
Travis:
OK, OK. And we've gone over all of those principles in depth in the taxes interview. So here's another...
Yosef:
I mean...
Travis:
I'm sorry, go ahead.
Yosef:
In our previous discussions, we've basically discussed the highlights.
Really, a business owner that is concerned about their own particular
facts and circumstances should definitely speak to a qualified CPA or
attorney, if not both.
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