S corp or not

[drRad]

I live in California. I will have a W2 income of $50k (first half of the year as a fellow) and 1099 income $150k (second half of the year as an attending independent contractor) this year. Would there be financial benefit of filing LLC with S corp election with this amount of income? Or should I wait until the following year to incorporate when I will make $300k+ a year?

[jfoxcpacfp]

There is no reason to file as LLC and elect as an S-corp. Choose either one of the other. My preference would be the SMLLC unless you can justify that paying yourself an amount that is less than you bill is a "market salary" and the added income you will distribute just happened to accrue to the business through no work on your own part. Will you have employees? This would help justify incorporating. Otherwise, if you're the only "employee", my recommendation is to stick with a SMPLLC.

[FLEMdoc]

I live in Florida and established a LLC that has elected to be treated as a S-corp.  The LLC election as a S-corp was a very simple process.  I believe you just file Form 2553 with the IRS to elect your LLC to be treated as a S corp. This works in my situation because my salary is a little higher than the average emergency physician in my region.  I pay myself a "market salary" with payroll taxes deducted and this generates at W-2.  My LLC then distributes the remainder of cash on hand to me as distributions.  These distributions are subject to federal but not payroll taxes.

[jfoxcpacfp]

FLEMdoc wrote:

I live in Florida and established a LLC that has elected to be treated as a S-corp.

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Just curious - why did you not simply set up a corp and elect to be an s-corp? Were you already filing as an LLC for awhile before electing s-corp status?

[FLEMdoc]

I was 6 months out of residency when my LLC was established.  The company that hired me requires all of their independent contractors to be incorporated.  They had a law firm that provided this service and the company provided this service to me free of charge.  I could either chose to be incorporated as a Professional Corporation (P.A.) or LLC.  I was able to research and find that I could elect S corp from LLC but couldn't find info one way or other for P.A.

[jfoxcpacfp]

FLEMdoc wrote:

I was 6 months out of residency when my LLC was established.  The company that hired me requires all of their independent contractors to be incorporated.  They had a law firm that provided this service and the company provided this service to me free of charge.  I could either chose to be incorporated as a Professional Corporation (P.A.) or LLC.  I was able to research and find that I could elect S corp from LLC but couldn’t find info one way or other for P.A.

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That makes sense - good for you to figure it out on your own. And goes to show the shallowness of the services some "experts" provide.

[drRad]

How do I file S-corp directly without first establishing Professional Corporation or LLC in California? I have also heard that physicians could only establish Professional Corporation and not LLC in California. Does it sound right?

[jfoxcpacfp]

 

drRad wrote:

How do I file S-corp directly without first establishing Professional Corporation or LLC in California? I have also heard that physicians could only establish Professional Corporation and not LLC in California. Does it sound right?

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A business doesn't file an S-corp "directly". The shareholders "elect" for the business to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. Either an LLC or a corporation can elect S-status.

California, afaik, is the only state that does not allow PLLCs (Professional LLCs). You will have to set up a PC (Professional Corporation) and elect S-status.

[Zaphod]

There would be no benefit to incorporating in California, its over 1k to do and then costs per year as well. Theres nothing you cannot deduct as a SP that you can as a LLC. You cannot form a LLP in california.

Even over 300k there is still very minimal benefit to being an S corp. Dont forget it cost time and money, is much more complicated than just doing your taxes as an SP and still getting the benefits (aside from a distribution which wont save much and may invite scrutiny).