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Iowa | We did it to level out self employment tax. As I understand it the LLC now pays the wife and I a wage, and the LLC gets to deduct our wages as an expense, and net income over expenses is taxed at a corporate rate- so you don’t pay self employment tax on it. I’m on year 3 (still learning it and my accountant does all the figuring) but I know my tax liability went way down. I farm, and have 2 significant but variable 1099 income streams. Friend of mine did same thing a few years earlier and he said it saved his money too.
So as I understand it: say I make 160 k the old way- I’d pay that at standard tax rates and self employment tax for the whole amount. Now I pay myself 80, and LLC makes 80- self employment tax is only on the wage portion (80) not full amount. Probably the biggest adjustment was to make sure you keep you’re accounts separate as it is a different entity than you. I think it lessened the penalty when you get into the higher brackets - coupled with SE tax it’s brutal- so you don’t chase things just to have a write off. | |
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Stupid LLC?
