Is an LLC Necessary?

[sirherbie]

So how does a sep or individual 401k work with a 50/50 split with W-2 and taking dividends? Since neither is really self employed fica based income can you do either?Once Your salaried income exceeds the $118,500 ss ceiling there's no benefit.

 

[sman]

So how does a sep or individual 401k work with a 50/50 split with W-2 and taking dividends? Since neither is really self employed fica based income can you do either?Once Your salaried income exceeds the $118,500 ss ceiling there's no benefit.

SEP contribution limits are based on W-2 income in this scenario (the lesser of 25% or $53,000). Not sure how you gather W-2 income isn't fica based income. I pay fica taxes on my W-2 income.

And yes, that is what we've been saying about there being no benefit (regarding saving money on taxes) once your salary reaches or even gets close to the income limit for fica taxes.

 

[sirherbie]

Here's a scenario. Agent makes $225 gross 1099 income. They have expenses of $75k. That's very common with Fe and huge lead costs. So he nets $150k. If he was a llc with a sub s election and he took $75k in w-2 income and $75k in dividends . He can only do the sep against the w-2 ($75k x 25%) or $18k correct ? If he's a sole proprietor he could do a solo 401k of $53k ( $18 k plus $150k x 25%). If over age 50 with catch up can do $55,500.Thats a big difference .

 

[HoosierLife]

So you're saying once your reach $118k net, it doesn't matter how much draw/salary ratio you take, it won't affect your taxes??

 

[sman]

Here's a scenario. Agent makes $225 gross 1099 income. They have expenses of $75k. That's very common with Fe and huge lead costs. So he nets $150k. If he was a llc with a sub s election and he took $75k in w-2 income and $75k in dividends . He can only do the sep against the w-2 ($75k x 25%) or $18k correct ? If he's a sole proprietor he could do a solo 401k of $53k ( $18 k plus $150k x 25%). If over age 50 with catch up can do $55,500.Thats a big difference .

That is correct with the exception that the catch up amount is $59k (additional $6k for those 50 and older).

 

[InsCommentary]

Shell out a few hundred dollars and get professional advice. The financial implications can vary down to the state and city where you live and even down to personal property taxes.

 

[MW Agent]

I agree. I've done my own analysis, and there really isn't much difference or savings with the current tax brackets between being a sole proprietor and having a separate legal entity.

Whatever you may save on taxes... will just get eaten up with the more complexity filing taxes for the legal entity and the state fees.

Extra filing, taxes, and accounting is about $2K all in. Usually it doesn't make sense until you can save at least $4K in extra taxes. A rough line in the sand is netting at least $70K as a sole proprietor.

I'm not an attorney, but an LLC may provide some legal protection against actions of a sub producer. But not for personal production. Again, I am not an attorney.

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So how does a sep or individual 401k work with a 50/50 split with W-2 and taking dividends? Since neither is really self employed fica based income can you do either?Once Your salaried income exceeds the $118,500 ss ceiling there's no benefit.

It's not as large, but you are still saving on Medicare taxes. At that point, depending on your situation, a C Corp may provide you more deductions. It is situation specific.