I am starting a new business in California and can't decide whether it should be an LLC or S Corp or an LLC as a S Corp. It would be a single person LLC or S Corp (no other shareholders or members)offering a service (not a product).
I understand the tax benefits of the S Corp but don't the costs of set-up, UI taxes, payroll fees and the fact I can't write off 1/2 the 15.3% self employment tax pretty much negate the benefits?
Presume I earn 100k a year. A reasonable salary in my field is $65k. So if I'm an S Corp, and the other 35k is a distribution, I should save $5355 a year in taxes.
However, as an S Corp, if I have to pay UI or 1.5% on the 65K ($975), appx $500/year for bank to handle payroll distributions for me, and can't write off 1/2 of $15k self employment tax on personal income (presuming I am taxed at a rate of 25%, this would be about $1900), cost of having taxes done by an accountant separately for the S corp of $400, the savings would be only around $1580.
With all the extra administrative time of an S Corp for board meetings/minutes, payroll calculations, taxes etc. - is it really worth it?
Is there anything I am missing?