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Tax Planning/LLC Question: S-Corp vs. Sole Proprietor


Hello Mr. Arnoff and thanks for being an expert!

I just started a sole-proprietor LLC and I'm trying to decide if it would be better to make it an S-Corp.  Do you have any advice?  Here's some details on my situation:

I am the owner, President and sole employee of the company (SDVOB certified)
It is a management consulting firm, I have no goods, only services
I usually get picked up by bigger companies as a subcontractor
 - I do all the consulting
I charge an hourly rate that averages $150k per year
The work is usually done at the client site with a little telecommuting
Management/ownership of the company is at my residence
I drive to work
The company is based in VA

I am married with 2 kids (10 and 14)
My wife is a teacher and makes $60k per year
We have a $3,500 mortgage payment on the residence
We have a $1,700 mortgage payment on an investment property

Looking forward to hear your your advice.  Thanks again!

Chris - An S-corporation is an excellent strategy for both asset protection as well as tax savings.

Inherent in any discussion of S-corp owner/shareholder/employees is the requirement to take a reasonable wage.  What this means is that you will have to pay yourself an amount of salary equal to your value or at least equal to what you'd pay someone else to do your job.

As you may well be aware, by electing S-corporation status, you will be able to take distributions of your profit rather than pay self-employment taxes on your entire net income and net of your salary, which must come first before any distributions.

You will have to evaluate the advantages and disadvantages of the S-corp when weighed against the reasonable wage issue.

We could discuss further all of the benefits as well as pitfalls.  A great starting point would be to take a look at the web site of the national association representing S-corps.  They have valuable advice that could assist you in making an effective determination.  

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As an Enrolled Agent, I am fully capable of providing tax advice as it relates to personal and business income taxes. Enrolled Agents are the only Federally licensed tax practitioners and are admitted to practice before all administrative functions of the IRS. My specialty is working with small business owners who file Schedule "C" and helping them to structure their business in such a way as to maximize as many tax advantages as possible. I also enjoy working with individuals who have both routine as well as complex tax situations. I prefer to concentrate on individuals and small business tax planning.


I have a 25 year background in financial services including tax, bookkeeping, insurance, real estate and securities. I was previously the Chief Financial Officer of a local and national franchise organization. I am currently semi-retired, but used to own (in partnership with another EA) an individual and small business financial engineering firm where I work with nearly 2,500 individuals and small business owners in nearly every state and almost every continent, assisting them in all aspects of their tax and financial well-being. I have prepared or reviewed more than 8,000 tax returns in my career.

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