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Payroll taxes are hard to avoid
Q: I own a small business (LLC) and I currently get paid as an employee. Is there a better way? I know I can't avoid taxes, but what about FICA, Medicare, and unemployment taxes?
A: A limited liability company, commonly called an "LLC," is a business structure that fits somewhere between the corporation and the sole proprietorship. Like a corporation, all LLC owners are protected from personal liability for business debts and claims, a feature known as "limited liability." This generally, with some exceptions, means that if the business owes money or faces a lawsuit for some other reason, only the assets of the business itself are at risk. Generally, and again with some exceptions, creditors cannot usually reach the personal assets of the LLC owners, such as a house or car.
However, unlike a corporation, an LLC is not a separate tax entity; instead, it is what the IRS calls a "pass–through entity," like a partnership or sole proprietorship. All of the profits and losses of the LLC "pass through" the business to the LLC owners who report this information on their personal tax returns. The LLC itself does not pay federal income taxes. In fact, the IRS treats one–member LLCs as sole proprietorships for tax purposes. This means that the LLC itself does not pay taxes and does not even have to file a return with the IRS.
What this means for you is that it really makes no difference how you are paid. It all will be the same in the end.
Some issues discussed in the expert forum are complex and continually changing.We recommend you consult a professional advisor about your specific circumstances, needs, and applicable laws. More details.