My wife and I just started an LLC as partners. She is also a full time employee at another company. We are looking for advice about selecting to tax as an S-Corp vs a partnership?
Also, are there rules about how much revenue has to be classified as salary vs distributions?
Hi @ForrestG !
Congratulations on your business venture! The compensation for S-corporation shareholders typically should be "reasonable" for the services they perform. It should be comparative to other industry businesses paying employees for the same type of services. Here is a resource from the IRS regarding S-corporation compensation:
The taxation of S-corps and partnerships is similar in that they both "pass-through" to the individual level, but there are some marked differences that may or may not be beneficial to you. Here are some resources that may help you decide:
https://turbotax.intuit.com/tax-tips/irs-tax-forms/what-is-form-1065/L5UpOREHb
Many people go the S-corporation route so that they can be employees and collect W-2 wages and have the withholding done through payroll so they don't have to calculate estimated tax payments.
Hope this helps!
Cindy