You are defined as a sole proprietorship, unless you file to setup a corporation and choose to be taxed as an S-Corporation.
LLC is a legal term, and LLC's can be taxed as sole proprietorships or S-Corporations.
Unless you change something, you are taxed as a Sole Proprietorship.
Your net profits are first subject to social security and medicare taxes; a self employed person is responsible for paying both the employer and employee side.
"Self Employment Taxes" or "SE Taxes" are the combination of social security taxes & medicare.
Your net profits will "flow through" to your personal 1040 tax return, and you'll owe Medicare on all wages and Social Security taxes on all income up to the social security limit, which changes often according to congress.
You will pay a 12.4% social security tax up to the SS limit, and a 2.8% medicare tax (increased medicare at higher income levels).
You will then pay state and federal income taxes.
Social security taxes, and the wages covered, are what determine your social security benefit in retirement.
When you convert or become an S-Corp, your income is split into 2 parts, a salary and a distribution.
Your S-Corp will pay you a salary, and it must be "reasonable" for what you do for work (see IRS).
The salary portion is subject to self employment tax, the distribution part is not subject to the self employment taxes.
You might dramatically reduce your self employment taxes by filing to be taxed as an S-Corp.
You can file a 2553 to become an S-Corp.
You will need extra compliance, increased bookkeeping and guidance to ensure your S-Corp is run properly & stays compliant.
You only want to convert to an S-Corp if the tax savings will be enough to off-set the cost of accountants and compliance.
The savings from an S-Corp conversion is often used to invest & pay for accounting help and can help build your business.
You Deserve to Pay As Little in Tax as Legally Necessary
Small business is the lifeblood of our economy, and we love helping business owners avoid paying unecessary taxes.
