Hello

I am an owner of a child care center, that I have been operating for 2 years now. I have spent the last two years barely making a profit, trying to keep the taxes current. I am now in my 3rd year of business and have added some new programs which will create a greater profit this year. I have been told by some other child care business owners that I might need to consider changing my business from an INC to an LLC, to ease some of the tax obligations.

Would changing my business structure from INC to LLC be more beneficial? Im not easily persuaded, but I thought it was worth the research. Constructive criticism is greatly appreciated!

I guess it depends and hard to accurately point out. I assume your LLC as SMLLC,NOT MMLLC filing form 1065,also assume that your INC as either S- or C- Corp then, you may convert to a SMLLC by creating an SMLLC fom INC. Unless you make a specific election, the SMLLC would be "disregarded" for tax purposes and therefore you'd report taxes on Sch C/Sch SE, without need for a cumbersome return of 1120 or 1120S. Despite being treated as separate with regard to liability, a SMLLC's profits or losses can still be reported on your individual income tax filing on 1040. Along with easing your reporting requirements, you may also save on tax preparation costs since you don't need a separate filing UNLIKE the INC return. The MLLC is a fairly new type of business structure formed under state statutes that's similar to corporations, INCs, in that owners have only limited personal liability for any actions and debts of their companies. The levels of protection vary by state, but generally debtors can't put liens on an SMLLC owner's' personal property. Without an SMLLC, an owner's personal assets could be claimed in any lawsuit or debt-recovery action against his company. An SMLLC doesn't, however, protect personal assets that are used as collateral for a business loan. Some business owners use the structure of a C corp to limit their personal liability, however, the IRS taxes profits of a C corp at the corporate level and dividends at the shareholder level, so a C corp's owners face a double tax. Owners of an SMLLC report their shares of a biz’s profits or losses on individual tax returns at a lower rate.

Thanks for the information. Another question, In an LLC (SMLLC or MMLLC) does the employer still have to match employee payroll withholdings taxes?

" In an LLC (SMLLC or MMLLC) does the employer still have to match employee payroll withholdings taxes?"=====>>>cORRECT; Aslong as you hire EE(s), you ,as an ER, must match EE payroll w/h, FIC taxes I mean.

however, on Sch C line 23, you can deduct EE payroll w/h matched by you.

As I continue to research, I am faced with another question. Will it be more beneficial for me to establish an LLC and be taxed as an sole-p. or will it be more beneficial to be taxed as a corp. As I continue to read, it seems like sole-p. are taxed at a higher rate.

Basically, I guess the question is? Is being an LLC and being taxed as a corp is better than being taxed as a sole-p.?


Thanks!

#1;As mentioned previously, do yo mean a C corp or an S corp?? It depends on the situation if your corpis an S corp or C corp; in the case of a C corp, while there are slight differences between a C Corp and an S Corp, the main differences have to do with the tax benefits;s you can see, C Corp is taxed based on the income or profit it generates. It is also possible that double taxation(even triple taxation) can occur because dividends earned by the corporation that are passed on to the corp's shareholders can be taxed again at the individual level.An S Corp, on the other hand, is not taxed at the corporate level, which means that the company is not rsponsible for paying tax on its income or profits. Instead, the income is passed through to the shareholders of the company and each shareholder is responsible for paying individual taxes on the income he earns.An S corp is much like MMLLC/reg Partnership filing 1065.For an S corp, as far as employment taxes are concerned, an officer of a C Corp who is paid a salary is subject to paying self employment tax. The same is true for an S Corp. The difference with an S Corp is that the owner/shareholder distributions are not subject to an employment tax.Fotr an S crop, you, as an owner/EE, need to issue your own W2 that is subject to FICA taxes and you are NOT subject to SECA taxes on your reg earnings generated from S corp biz operations, however, as a sole owner, you need to pay SECA taxes as long as the amount on Sch SE line 2/3 is $400 or exceeds $400. However, you may deduct half of your SECA taxes on 1040 line 27. However, his means that you ned to pay more SECA taxes to IRS as a sole owner. It is true.In terms of SECA taxes, both a sole proprietorship and SMLLC are two of a kind.
Note; as far as your INC was an S corp, then, the sub S coirp enjoys tax advantages over sole proprietorship because everything that a shareholder acquires is considered part of his taxable income on 1040 ,NOT reports on Sch C/Sch SE. This includes self-employment taxes, which a sole proprietor has to pay separately. In other words, a Sub S corp structure prevents double taxation, which a sole proprietorship owner must endure.However, Sc orp return form of 1120S is more complicated than reg 1040, so it costs more to file S corp returns as you need to fiel 1120S/1040/ and need to pay your own FICA taxes on your paycheks.






#2;As mentioned above; I gues the corp that you designate here is an S corp.A SMLLC/ or a MMLLC is also different from a sole-proprieotrshi. Do you mean a SMLLC or MMLLC???