S Corp LLC P/L pass through to owner

[JPSL]

As the sole owner of a new S Corp LLC I believe any profit I earn at the end of the year will be passed onto my personal tax return. Will I be required to pay self-employment taxes on this profit? Also, if there is a loss will the loss be passed on to my personal taxes? Would a profit or loss be treated the same by New York State and the Federal government?

[ClarissaA · Accepted solution]

A really big benefit of having an S Corp LLC is that you can pay yourself a portion of the owners income as wages and issue a W2 at the end of the year.  

When you pay yourself wages from the S Corp, those wages as subject to FICA payroll taxes at 15.3%.  Half is withheld from the earnings when you make the payments, and the other half of this amount is paid by the S Corp and can be taken as a business expense on the S Corp's tax return.   The IRS requires that the salary paid be a "reasonable" salary - what is reasonable is going to depend a lot on your business.  

After the S Corp files it's own tax return at the end of the year, the S Corp issues the owner a Schedule K-1 which lists the owner's income that is subject to self employment taxes.  You will pay the full 15.3% of the self employment taxes on those earnings.  

I like to provide examples with numbers - it makes it a bit easier to follow:

If you make $100,000 in earnings from your S Corp, you can have that income paid out as $50,000 in salary and $50,000 in profit. You’ll pay FICA payroll taxes (15.3%, which is the same as the self employment taxes) on just $50,000 instead of the whole $100,000. The remaining $50,000 of your income is only subject to income tax.  The self employment tax on the half that is paid as salary doesn't disappear (but you paid half of it when the paychecks were issued, and the S Corp also pays half. )  
How an S-Corp Can Reduce Your Self Employment Taxes 

If your S corporation suffers a loss in any tax year, you can deduct your share of the loss against your other sources of income, such as wages you or your spouse earn working for another business, dividends and interest. However, the amount the loss you may deduct depends on your tax basis.  
S Corp Stock and Debt Basis Calculations 

New York does treat your profit and losses in the same manner as the federal government for pass through entities.  You will be taxed at your ordinary income tax rate on your profits from the S-corp.

[Jackstar221]

Hi,

Here are S corp instructions regarding your K-1 https://www.irs.gov/instructions/i1120ssk#:~:text=Use%20these%20instructions%20to%20help,subject%20t... 

As you can see in the purpose of Schedule K-1 section, Your share of S corporation income isn't self-employment income and it isn't subject to self-employment tax.

In addition, here is an additional article regarding S corporations: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations#:~:text=Shareholders%20... 

Yes, shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates.

Also, here is information regarding entering a NY K-1 into Turbotax: https://ttlc.intuit.com/community/state-taxes/discussion/where-to-enter-new-york-schedule-k-1-equiva... 

The New York K-1 could be very similar to the federal K-1, it may have very little information, and it may possibly be different from the federal K-1, just depends.. The example in the article indicates that a New York K-1 may have info that is "information only," which would not require you to enter anything.

Here is an article regarding how to enter a K-1 in TurboTax: https://ttlc.intuit.com/turbotax-support/en-us/help-article/import-export-data-files/enter-k-1-recei... 

You can also go to federal-wages and income-S corps and partnerships near the bottom-and then enter the K-1.

Thank you,

John

CPA