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Salary & Payroll

Hi,

I'm going to be setting up a one-person LLC soon that will be the umbrella company for many of the ideas I'm going to be trying out. I plan to simple D.B.A. this company for all the various ideas.

From an accounting and tax standpoint - can anyone offer suggestions for how to handle paying myself?

Should I set up payroll and pull a salary? Should I just take owner draws?

Thanks for your help! tony

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* THIS IS NOT TAX ADVICE, AND I AM NOT A LAWYER, OR TAX/ACCOUNTING PROFESSIONAL. PLEASE DON'T SUE ME *

If you are the sole owner of the LLC, you are actually a "Single Member LLC (SMLLC)", which is a "disregarded entity" as far as the federal government is concerned, and you file taxes just by adding some new things to your existing 1040. Essentially, you pay taxes as if you are a sole proprietorship, while enjoying the liability shield of an LLC.

With this type of setup, any money that the company has made at the end of the year is added to your personal income. I don't believe it matters if you pay yourself periodically and call it a salary, or you just leave it in the checking account -- it's still money that was made by an entity that you entirely and exclusively own.

* THIS IS NOT TAX ADVICE, AND I AM NOT A LAWYER, OR TAX/ACCOUNTING PROFESSIONAL. PLEASE DON'T SUE ME *

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I won't sue you TrueNorth - thanks for the response!

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I'll use the same disclaimer as TrueNorth. :)

I have an s-corp, for which I'm the president and also employee. I pay myself a salary in addition to taking distributions (as the president of the s-corp). A couple things you can do if you're the president as well as an employee: (1) set up a SEP-IRA and have the corporation contribute up to 25% of your gross salary (although if you do SEP-IRA contributions, you need to do this for ALL employees), (2) the corporation pays 1/2 of your social security and medicare taxes, (3) have the corporation pay 100% of your medical insurance premiums (although, again, you'd need to do so for ALL employees). Doing those things helps lower the net income of the corporation, which in turn allows you to pay less in taxes. For me, the medical insurance premiums are a big deal, since they're $1100/month for the whole family, which is essentially paid in pre-tax dollars.

Also, for taxes, as an s-corp, I pay employee-related taxes (federal income tax withholding, social security, & medicare) each month that I pay myself salary, so I'm not stuck with a giant tax bill at year end.

I don't specifically know if those things can be done via an LLC, but for an s-corp, they are.

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Thanks Greg. It will be important for me to include retirement and insurance payment as pre-tax dollars. I'll look into doing the same with an LLC that files it's taxes as an S-corp - just because it's cheaper to create an LLC.

— Onodor

Greg's setup sounds like it is well designed for a firm that pays employee wages, retirement, etc... My answer is more for the simplest possible business entity (no retirement plan, no employees, no sales tax, etc...)

— TrueNorth

Good points/thoughts. I'm in New Mexico, but I know that the cost of creating an LLC/s-corp varies by state. Here in NM, creating a DBA is simple and free, but I know that other states may charge a fee or require a filing to do it.

— GregM
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