LLC vs S-CORP for Side Business along with regular job

Situation:

A person has a good-paying job where the social security tax limit is reached or almost reached every year, and the person also has a side business (LLC) that brings in more than 100k every year with the profit projected to double in the near future.

Dilemma:

Should that business be switched to an S-Corp, or should it maintain its status as LLC since the self-employment tax savings are mainly only on the medicare part?

125

Level 15

Feb 3, 2021 8:19:04 AM

I am sure you aware that an S corporation must pay you, as sole shareholder, a reasonable salary for your services (in the form of a W-2).

However, there is certainly more flexibility with an S corporation for your purposes (e.g., you could possibly take at least a small part of the net income as a distribution).

Regardless, you need to take state law into consideration and should really consult with local legal and tax counsel before making any decisions.

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LLC vs S-CORP for Side Business along with regular job