Self-employed

[Nick Rr]

Good morning, thank you for the opportunity to ask a question. I’m self-employed with around 90k yearly income. Is it a good idea to set up an LLC and pay myself a salary in a reasonable amount, and receive the rest of income through a distribution? Awaiting your response. Thank you! 

[tagteam · Accepted solution]

A single-member LLC is disregarded for federal income tax purposes; it is treated as a sole proprietorship unless an election is made to treat the LLC as a corporation.

As a result, your single-member LLC could not pay you a salary (again, unless an election was made to treat the LLC as a corporation).

[Nick Rr]

Thank you for the prompt response. My wife works with me so she can be an employee as well, will that qualify since it will be two employees now?

[tagteam]

Even if you have a multi-member LLC, the default entity type is a partnership. 

As such, members (partners) could only receive guaranteed payments, which are reported on their K-1s (not W-2s). 

In other words, partners of a partnership and members of an LLC (under the default classification) cannot be employees of the entities of which they are partners/members.

[Nick Rr]

Thank you

[Nick Rr]

If I may, what would you suggest to do in order to deal with the self-employed tax, Social Security, etc. in a more efficient way in my case? Thank you again.