Managing an S-Corp (after switching from a Sole prop)

2 points by jblake 5 years ago | 2 comments

I moved to Nevada (from Cali) in August and opened a Nevada LLC in November. I'm all set up on Payroll (using Gusto) and believe I have that figured out. I just sent in Form 2553 to the IRS. I have a few questions I'm hoping someone can help with!

1. I capitalized the LLC with $2,100 (mostly to avoid Chase fees) and want pay myself back. Should I account for this as a simple loan and transfer it back? So it's not counted as income.

2. I filed the LLC in Nov to give myself time to open up all the accounts and stuff and was careful not to do any "business" for the remainder of the year under the new LLC, hoping to avoid filing a return (I will only file my personal return for 2020). Is that correct? In form 2553 I entered the effective date as Jan 1 2021.

3. How do I distribute extra earnings outside of Payroll? I can simply transfer the money between my Chase accounts, right... the important thing is how to account for that dividend on both form 1120S and my personal return? I am careful to only pay my payroll through Gusto.

I know y'all will say hire an accountant or whatever, but I've managed pretty well doing this stuff myself. I was CLOSE to doing EFTPS payroll payments myself... but Gusto (so far) is money well spent ($25/mo).

verdverm 5 years ago |

1. Use loans for any money you put into the Corp. I have a legal doc I can share if you email me (in profile)

Do get an accountant. Think of it as IRS insurance that costs around $200 / month that also gets you both corp and personal returns automated. I do my own bookkeeping and hire an accountant once a year for taxes only. They will typically include a quick audit of the books. Finding one is hard and I haven't kept one between two seasons yet. They can so answer 2 and 3 with certainty. Afaik, you will pay income taxes on all profits as any you don't distribute via payroll pass through to individual. It's more about legal protection than its tax benefits

jblake 5 years ago | |

Thanks, I will email you. Not a bad idea on the accountant, but finding (a good) one is indeed the hard part. How do I even vet that? I hate "hiring" for something I don't know a lot about. As for tax benefits, my understanding is I will save ~4,500 on self-employment taxes (because I pay myself 100k... $130k-100=30 difference... social security caps at around $130k), plus no longer pay medicare 2.9% on anything past 100k. Additional taxes include state payroll things like UI, but it's not a lot. So it could be worth $10,000+ in saved taxes to be an S-Corp instead of a Sole-prop.... was my conclusion.