September 21, 2015
Business Tax Prep in Chicago Illinois
I just got a call from one of my upper income clients. He has a marketing business in the Northwestern Suburbs of Chicago where he nets anywhere from $800K to $1.2M annually.
His business is organized as a Single Member LLC. As such he was taxed as a Sole Proprietor and was paying a ridiculously excessive payroll tax on his earnings. We elected an S-Status for the entity. Why? Because corporation earnings are not subject to payroll taxes. A corporation is never going to turn age 65 and ask for Social Security and Medicare Benefits. An entity taxed as a sole proprietor will.
That first year he saved Medicare Tax on nearly $800K. Social Security taxes stop at around $120K. But medicare taxes just keep on going. As an S-Corp we can declare a reasonable salary, issue a W-2, and save clients enormous amounts of money.
But upper income clients have other needs as well. This is a very talented man. People are constantly approaching him with new offers. Whether its a new business idea, or an existing one that they are trying to unload, he asks us to evaluate each opportunity. Generally the problem is finding a new opportunity that is worthy of his attention. He makes so much money in his existing operations, that most other businesses just don’t make sense.
The call this morning was about his wife. She now is generating income by doing consulting work on the side. His question was whether or not to include her new activities inside his existing business. She’s just getting started and its only a couple of thousand dollars worth of income. How would you have answered?
In true accountant fashion. I answered with a couple of double negatives.
First, it makes no sense for her to not have the protection of a corporate type entity. Operating as a sole proprietor is an easy way to get sued and lose your home. You simply need the protection of a corporate umbrella.
Second, it makes no sense to pay additional payroll taxes on the additional income. They are already paying in at the max. They aren’t going to receive any additional benefits.
Unless the activity poses some potential legal threat, why not put it inside the existing structure? Maybe there are some politics between the husband and wife where she wants the independence of having her own entity. Who knows? But for now put it into the existing structure, save the taxes, and the potential legal headaches. If it gets bigger, maybe think about putting it into its own structure.
Upper income clients have different sets of issues. Its now always about saving money. Mostly its about preserving it.
If you are having problems with your Business Tax Prep in Chicago Illinois or have issues with your accounting in general, we would love to help. I enjoy hearing from my readers, and can be contacted at
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Chris Amundson is the President of Accounting Solutions Ltd., a full service public accounting firm of Certified Public Accountants and Enrolled Agents handling the bookkeeping, accounting, tax preparation, and audit representation needs of Businesses, Estates, Trusts, and Upper Income Individuals.
September 21, 2015