Today TaxMama® hears from Pistachios, who asks a good question. Basically, he’s a trucker and wants to know what tax entity to use for his new LLC.
Dear Family,
Let’s just clear up some myths about LLCs and the rush to make entity changes.
The answer is a bit long, so if you are thinking of making this decision, please read the whole answer – including my recommendation, in TaxMama’s® TaxQuips Forum. Here are the high points:
As an individual, you have the following choices when you have an LLC:
a) You can be a disregarded entity
- This means you file a Schedule C as part of your personal Form 1040 tax return.
- You can take all your deductions on the Schedule C
- Your business qualifies for the new 20% qualified business income deduction – Sec 199A.
b) You can be an S corporation.
- That means filing a separate corporation tax return, Form 1120S,
- having a payroll (even if you’re the only employee), and
- issuing a Schedule K-1 to include in your personal Form 1040 tax return.
- The S Corp doesn’t pay taxes – you do.
- You can have the corporation pay all the expenses and deduct
them.
- If you pay anything out of pocket, you MUST submit an expense report and have the corporation reimburse you, in order for the corporation to take the deductions.
- AND the reimbursement arrangement must be defined in the corporate minutes.
- Your business qualifies for the new 20% qualified business income deduction – Sec 199A – which gets passed through to your 1040 and you sort out the numbers there..
c) You can be a C corporation
- That means filing a separate corporation tax return, Form 1120,
- having a payroll (even if you’re the only employee).
- The corporation pays taxes on the profit.
- They issue you a Form W-2 to report your income on your personal Form 1040 tax return.
- You can have the corporation pay all the expenses and deduct
them.
- If you pay anything out of pocket, you MUST submit an expense report and have the corporation reimburse you, in order for the corporation to take the deductions.
- AND the reimbursement arrangement must be defined in the corporate minutes.
- Your business does NOT qualify for the new 20% qualified business income deduction – Sec 199A.
You can read the recommendation in the TaxMama’s® TaxQuips Forum.
And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At https://iTaxMama.com/AskQuestion
