rjs
Level 15
Level 15

Get your taxes done using TurboTax

Is your LLC a single-member LLC? If so, it's not a pass-through entity, it's a disregarded entity. As far as income tax is concerned, a single-member LLC doesn't exist. It's just you. You and the LLC are one and the same.


Are you the only owner of the C corporation? Who would actually perform the services that the C corp provides to you? Does the C corp have any employees? (An employee gets paid wages and gets a W-2 at the end of the year.)


I don't think your proposed scheme will work. If you pay the C corp for services that you perform as an employee of the C corp, then part or all of the money that you pay comes back to you as taxable wages on your W-2. That doesn't reduce your overall tax at all. (Remember that the LLC is disregarded. It's just you paying the C corp.)


If you pay the C corp for services that you perform without getting paid, it doesn't pass the smell test. The transaction has no valid economic substance. It's just a tax evasion scheme. The IRS will see through it pretty quickly.


To benefit from the lower corporate tax rate, the money has to stay in the corporation. As soon as you pay it to yourself as either wages or dividends, it becomes taxable income to you at your regular tax rate. Since the corporation has already paid tax on it, your are actually increasing the overall tax.