Nyc Jobs Make S-corp Less Attractive?

[Ahaziah]

s About Taxes)/NYC jobs make S-Corp less attractive? Advertisement Expert: Richard Fritzler - 6/12/2008 I'm going through the standard LLC vs. S-Corp debate - I understand you strongly advise towards "real" corporations, however, I want to know your thought about NYC and the tax code relative to this debate. I am starting a new business that will generate the majority of revenues from within NYC(the business may be located elsewhere). My understanding is that since, New York City does not recognize S corporation status - a New York S corporation having income form New York City sources will be taxed as a corporation for New York City tax purposes. So, if the debate becomes Corporation(double taxation) vs. LLC(multi-member - 2 partners), would the LLC be the best choice for a small business? This will be professional services, scale to at most 15 employees. I was initially interested in forming an S-Corp because I was under the impression it offered greater liability protection than a multi-member LLC, but perhaps this isn't the case? And, I like the idea of pass-through entity for taxation purposes.

Thank you for your assistance.

Zoe

[Valentine]

Wow, you really set me up with the worst case scenario: As you have described it, a lesser man would give in and say, I've tried to explain it and you still want to go 'passthrough' then go ahead. You have included almost every possible claim to justify not being a Real Corporation. Local mandatory tax . . . Multiple Members . . . Professional Corporation(licensed professionals operating as a real corporation in their licensed field are taxed much higher). . . You even still used the old 'Double taxation' just to rub my nose in it.. Come on!!

But I am a glutton for punishment so I'm not going to give in.

The NY requirement for paying taxes locally, would still be applied to the LLC since a tax return would be filed locally(as a partnership) and a 'pre-distribution' assessment would be made of the taxes due. For the moment let's consider that a wash for all choices. But I can get around it.(To be covered another time).

Professional in business? A real corporation can't directly get you into the far more favorable tax rate that a Normal Real Corporation has, but . . . that's right, with a little planning that can be solved 'indirectly'.

Tell me what is the Affective Tax Rate if we figure the nasty double tax? to simplify the discussion I'm going to ignore State tax rates, just for the moment.

And what is the Affective Tax Rate if we take the money under the 'Single Multi Tax' of the LLC or Sub-S?

"Single Multi Tax, you say, I haven't heard of that?" If you take the income through the LLC what taxES do you have to pay? Well there is the income tax . . . AND the self employment tax, which is actually 2 taxes, Social Security and Medicare. That is 3 taxes, do you have other payroll related taxes in your area? And remember, Self Employment tax is a GROSS tax, no discounts no deductions no rebates and it is on the gross income you receive. The Sub-S is the Stripmall Accountants silver bullet here since you can Not pay the SE tax on a PORTION of the income. But that portion is small and getting smaller.

So here is the math. $50,000 of Business Profit in the Real Corporation would net $42,500 of dividend, which would be taxed at . . .(what is that number?) that's right, dividends are taxed at 15% no matter how big, $6375, and we end up with net spendable in your pocket $36,125.

If we do the same thing as a Sub-S, the payroll taxes are 15.3 and the lowest personal tax rate is 15(remember GROSS) so the minimum tax to be lost is $15,150, leaving $34,850. That would be less. And the $50k is not enough on it's own to get the reduction of SE tax. If you took additional money as income then you might get the big(read 7.65% or less) savings on SE tax but your personal income tax rate would also go up.

And I am comparing the worst possible scenario for the Real Corporation. A 100% distribution of the profits. Contrasting the LLC and sub-S for liability protection is kind of like contrasting a cotton or a polyester knit sweater for rain protection. Both will work as long as it isn't raining, if it rains you won't be happy with either.

You are professionals, you will be personally liable because of your licensing, regardless the business entity, including a Real corporation.

If you are concern about potential lawsuits, you need to have a different plan, I can help you with that. But Let's get you into business and successful first. Are you ready to call me?

Richard Fritzler

www.owelesstax.com

www.nevadacorporateservices.com

phone 800 590-6612