Reasonable Comp for IRS Purposes

[WCMason]

Finally making the overdue move from sole prop to incorporated primarily to save on self-employment taxes. The salary my corp pays me has to be reasonable for the profession. Any input on where to put that number? Want to minimize tax but play by the IRS rules.

 

[HealthGuy]

WC ask your accountant !

 

[WCMason]

WC ask your accountant !

Accountant asked. Looking for additional input

 

[sman]

My CPA said there are several factors that determine "reasonable". Amount of time in business is one of them. There is a website, I think it's salary.com, that will give you averages. Insurance sales is somewhere in the mid 40's I think. For what it's worth, my CPA recommended $60k for salary. The rest is distributions.

 

[TwiLight]

Now that you are incorporating we need to know if it is an LLC or an S-corp or a C-corp. Since you are talking distributions I will assume an S-Corp. As an owner of an LLC a salary is not needed. It is pointless to treat an LLC as an S-corp, because once you do, it will always be considered a corp.

An S-corp is usually good to go as reasonable salary with your State's minimum Acceptance for Workers compensation coverage for Officer's and owners. This usually ranges from 18k to 45k depending on your State (GA).

Contact your Agent for Work Comp and ask what is the salary amount on audit for Officers and Owners.

 

[moonlightandmargaritas]

Since you are talking distributions I will assume an S-Corp. As an owner of an LLC a salary is not needed. It is pointless to treat an LLC as a corp, because once you do, it will always be considered a corp.

Huh?

An LLC can elect to be taxed as an s-corp (for federal purposes). It cannot elect to be taxed as a c-corp.

 

[TwiLight]

Huh?

An LLC can elect to be taxed as an s-corp (for federal purposes). It cannot elect to be taxed as a c-corp.

correct.....TYPO..... To elect an LLC as an S-corp is rarely needed for a single owner LLC was my point. Only in very complex returns is when it is needed. Best to consult his CPA about that.

 

[moonlightandmargaritas]

To elect an LLC as an S-corp is rarely needed for a single owner LLC was my point.

Once you get past about 60K in revenue, it can be a very powerful tax play for a sole member LLC. I'm living proof.

 

[sman]

Once you get past about 60K in revenue, it can be a very powerful tax play for a sole member LLC. I'm living proof.

I agree. That's the reason I did it as well.

 

[yogooglethis]

Once you get past about 60K in revenue, it can be a very powerful tax play for a sole member LLC. I'm living proof.

I have been paying way too much in taxes as a sole proprietor and have been thinking about an LLC butI was wondering if it would raise a flag if all of the sudden my salary reported to the IRS under an LLC is a third of what my AGI had been for the last 5 years?

The other thing I have been considering to minimize tax liability is establishing a defined benefit retirement plan whereas you can deduct annual contributions with no real limit.Once the the actuuary establishes how much you need to contribute to have X amount of money when you retire at age 62 or what ever age you chose that you can deduct whatever annual contrubution you need to make to get you there whether it's 10k or 100k.