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Nick Rr
Level 1

Self-employed

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! 

1 Best answer

Accepted Solutions
tagteam
Level 15

Self-employed

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).

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5 Replies
tagteam
Level 15

Self-employed

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
Level 1

Self-employed

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
Level 15

Self-employed

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
Level 1

Self-employed

Thank you

Nick Rr
Level 1

Self-employed

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. 

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