Accounting Articles > Tax Planning:
Close corporation tax planning, strategies, and solutions
The main concept here is to have the correct type of taxation structure, so that the client pays the least amount of tax legally.
LLC’s (or Limited Liability Companies) are fantastic from a legal liability standpoint. But if you are talking about an active trade or business, rather than a passive real estate type enterprise, the taxes can be high. The owners will pay both income and payroll taxes on the income. LLCs are pass-through entities. The income is treated the same way that it would be if you were a sole proprietor.
Regular or C-Corp income can also be expensive. Income is taxed twice in these entities at the federal level. The corporation pays its own income tax. But when the owner of the corporation takes that money out of the corporation, they pay income taxes on the same money a second time.
S-Corps, on the other hand, only pay income taxes once at the federal level. Any income or loss on an S-Corp is passed through to the owner of the S-Corp. If there is income, then income tax is paid at the personal level. If there is a loss, then that is passed through as well. If the owner has basis, then that loss may be deductible off of his or her personal income taxes. More importantly, there are no payroll taxes on the income passed through to the owner on this type of entity.
I’m not saying that S-Corps are always the way to go. Individual circumstances vary greatly, so my recommendations will change quite often as well. Please call for further information.
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