Should I pay myself a salary under my sole proprietor LLC?

Forum|Forum|1 year ago
November 13, 2024
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Do you recommend I pay myself a salary and file as an S-Corp for my solo-LLC to mitigate taxes? If so, what is the minimum revenue I have to bring and what is the minimum salary I have to pay myself in California so I don't have to pay so much on SS and medicare?

Ask the Experts - Biz Tax Moves - Nov 2024

Bsch4477

Employee

You should probably have a net income of about $40,000 to make sense for having an S-corp. You have to pay yourself what a business of your kind would normally generate. There is no figure published by the IRS but they have statistical data they use to make that judgement.

AmitaR

Hello Susiefraga,

As a sole proprietor or a Single Member LLC, you should not pay yourself a traditional salary, instead you can take Owner Draws from your business profits. For tax efficiency, you may elect to file a S-Corp. In that case you are required to pay yourself a Reasonable Compensation and take additional money from the company in the form of dividends or distributions. This allows you to avoid some of the self-employment tax on the earnings of your business.

LLC or S Corp

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AR (CPA 10+ years)

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EMS0

@AmitaR in line with the question before, if I am currently a single member LLC and maybe myself as a 1099 contractor reasonable wages (per my field). Would it be helpful to file my taxes as an S Corps or file it as an LLC? The profit for this year is looking to be around or over $80,000. Thanks for your help 🙂

AmitaR

Hello EMS0,

First of all, just to clarify, if you are paying yourself as a Single Member LLC, you don't need to issue yourself a 1099 or a W-2.

Secondly, if you are filing as S Corporation, you must give yourself reasonable compensation and issue a W-2 for that.

Reasonable Compensation is the amount that would ordinarily be paid for like services in your field. Reasonableness is determined based on all the facts and circumstances.

You may draw additional amount as a distribution, and not have to pay self-employment tax on that distribution.

Thanks for participating in TurboTax's Ask the Expert event today. I hope this information was helpful!

Have an amazing day.

AR (CPA 10+ years)

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"