Washington resident working as an Independent Contractor for a California company

[deeeee]

I've been working for this company as an independent contractor for a number of years. I have been using an LLC (with S Corp election) and I am the only member and employee.

However, I am planning to downsize and save cost.

I am thinking of revoking my S Corp election or closing down the LLC and performing my business as a sole prop. Which way is more beneficial?

[tagteam]

I'll page Champ @Rick19744, but there are only a few considerations if the corporation owns no assets.

[Rick19744 · Accepted solution]

Honestly, you should probably sit down and have a one on one with a tax professional to understand the business and goals.  Having said that, a few comments:

• Not sure what cost you believe you will be saving based on the limited facts?
• If you are a single member LLC (disregarded entity)(SMLLC), all income will be taxed and subject to SE Tax.
• A SMLLC is essentially the same as a sole proprietor with some legal protection; each state has their own set of rules here and not going to provide any legal advice.
• With the current structure, as long as you pay yourself a reasonable salary, you potentially save some $$ on not paying SE Tax on distributions.  This can be tricky, and that is why it is best to discuss with a tax professional.  Not sure what you have been doing up to this point.
• Make sure the tax professional understands the impact on remote workers.
• Make sure you understand any filings with the California Secretary of State should you decide to make a change

[deeeee]

I am thinking of saving the tax filing costs, like annual fees to the state and the cost to file my 1120S with my accountant. I guess the question is the costs for keeping the S Corp elect vs sole prop and pay the SE tax?

[tagteam]

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@deeeee wrote:

.....I guess the question is the costs for keeping the S Corp elect vs sole prop and pay the SE tax?

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You should be paying yourself a salary for the services you perform for your S corporation, anyway (which would entail paying social security/medicare tax (FICA)), so that probably shouldn't enter the equation to a great extent.

You would, of course, save on annual fees and the cost of preparing the 1120-S.

[deeeee]

Right, thanks! It's just that business has been pretty bad in the past year, revenue dropped from mid-6 digits to low 5 digits. There's not much salary I can use to pay myself after all the fixed costs. 

[tagteam]

Yes, well, the annual fee then and also the accountant's fee, both of which are probably not insubstantial given the drop in revenue.