USA LLC (s-corp) to save taxes via MFJ

[Damon Webb]

I am interested in finding out if forming an LLC (S-corp filing status) is right for my Wife and I. My wife is currently a realtor who is paid usually with a 1099 by other realtors. I work for the goverment and not in the real estate business. would like to know, as taxes are concerned, if it is more advantageos for us to create a co owned LLC with S-Corp filing status and have the LLC be compensated for the work she does (with that income passed to her) then file jointly to save on our over all tax liability.

 

[Tyson]

What kind of revenue are we talking about here? It's probably not worth it. Here are some potential pitfalls:

-If a professional license is required to perform the services, the LLC/Corporation will likely also need to be licensed.
-As an S-Corporation dealing in real estate, you will have an enormous amount of laws to adhere to. Much more than on the individual-level.
-All shareholder-employees of S-Corporations need to be paid reasonable salaries before any distributions can be made.

Regarding the last point: If your wife is making $60,000/year as a Realtor and a reasonable salary for a Realtor of her caliber is $50,000, then only $10,000 is distributable. Distributions will only save you money on FICA taxes, not federal taxes. This amounts to about $1,500. You will likely pay far more than this in time/money just managing all the legal hurdles.

 

[Houston Tax Attorney]

Not to spam this board with our own posts (sorry, please don't ban me--this post is relevant), but there was a recent court case that addressed the situation where the S corp. was ignored in a similar situation. Here is the link. So if you do set up an S corp, you should make sure to switch over the contracts, etc.

 

[Damon Webb]

Thanks yea I was aware of the fact that she would need to structure all existing and future deals as going to the business entity.

 

[Damon Webb]

What kind of revenue are we talking about here? It's probably not worth it. Here are some potential pitfalls:

-If a professional license is required to perform the services, the LLC/Corporation will likely also need to be licensed.
-As an S-Corporation dealing in real estate, you will have an enormous amount of laws to adhere to. Much more than on the individual-level.
-All shareholder-employees of S-Corporations need to be paid reasonable salaries before any distributions can be made.

Regarding the last point: If your wife is making $60,000/year as a Realtor and a reasonable salary for a Realtor of her caliber is $50,000, then only $10,000 is distributable. Distributions will only save you money on FICA taxes, not federal taxes. This amounts to about $1,500. You will likely pay far more than this in time/money just managing all the legal hurdles.

I am not sure what a true reasonable amount would be. Because it does change, but we will be seeking the advice and help of a CPA to find out if this is a viable plan. I wanted to get some insight on this before heading to see one. Thank you for your help!

 

[Tyson]

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