Business Tax Question Again

[icor1031]

Neither a typical LLC nor an S-Corp will work for me, I must be taxed as a C-Corp - unless there's another way of having my business income not counted as personal income.

However, is this even possible - if I'm the sole owner/member of my business? As far as I understand, I can neither form a C-Corp nor form an LLC to be taxed as one, while being the sole member.

Also, if I am able to be taxed as a C-Corp - is the corporation required to pay me, as an individual? As far as I understand, this rule only applies to S-Corps?

[icor1031]

I got a response in a different forum. Will post here again if I hit a wall.

[billfitzmaurice]

You can go proprietorship and pay taxes on what you take in that way or you can go corporation and pay taxes on what the corporation pays you but either way you'll pay. The main advantage of LLC is as its name implies limited liability, so you can't be held personally responsible in case you're sued for something. Tax advantages are few, if any.

[icor1031]

You can go proprietorship and pay taxes on what you take in that way or you can go corporation and pay taxes on what the corporation pays you but either way you'll pay. The main advantage of LLC is as its name implies limited liability, so you can't be held personally responsible in case you're sued for something. Tax advantages are few, if any.

Sole propietor - pay personal tax on all income
LLC - pay personal tax on all income, but get *some* legal protection.
S-Corp - pay personal tax on income that the corp gives me, with a minimum wage/salary requirement based on the service provided.
C-Corp - pay personal tax on only what I choose to give myself from the company. This way, income ends up under "double taxation" when I do receive income, and it's the least advantageous method when rendering a service. However, it gives me protection on my gov't benefits, because its income isn't counted as my own until/if I withdraw it for myself.

LLCs can elect to be taxed as S-Corps or C-Corps, though not officially formed as one. (IRS Form 8832)

Correct me if I'm wrong.

[Whitneyville1]

Icor, the worst scenario is that Social Security decides you are "gainfully employable". Personally, I've never incorporated on the photography business. I am very careful to stay under my STATE's income guidelines, with help from my caseworker. Right now, for every dollar I make, I pay nearly 46% income (state and Federal) and SS tax. It's a rigged game. The bad part about incorporating yourself is the IRS looks at you harder. They can decide your corporation isn't a viable income generating entity and call it a hobby and tax and penalize you, AND compromise your disability benefits "earnings test".
I honestly believe if you went to a tax attorney he'd say "I have bad news and worse news". You could create a trust for yourself, and pay any income into the trust to be withdrawn at some very later date, but then you need a trust attorney on retainer and that is expensive.

[icor1031]

Icor, the worst scenario is that Social Security decides you are "gainfully employable". Personally, I've never incorporated on the photography business. I am very careful to stay under my STATE's income guidelines, with help from my caseworker. Right now, for every dollar I make, I pay nearly 46% income (state and Federal) and SS tax. It's a rigged game. The bad part about incorporating yourself is the IRS looks at you harder. They can decide your corporation isn't a viable income generating entity and call it a hobby and tax and penalize you, AND compromise your disability benefits "earnings test".
I honestly believe if you went to a tax attorney he'd say "I have bad news and worse news". You could create a trust for yourself, and pay any income into the trust to be withdrawn at some very later date, but then you need a trust attorney on retainer and that is expensive.

So, I'm completely screwed... Okay. Unless I find another option, and I think I've pretty well exhausted them - I'll be dropping out of school since I won't be able to go on to a grad program as required.

[michaelmoran]

Why not go normal C corporation. I think Whitneyville1 is being a bit negative. Under C corporation you pay corporate tax and when you take it out tax on dividend. But you control timing and depending on tax rate both dividend tax and corporate tax may be small.

[icor1031]

Why not go normal C corporation. I think Whitneyville1 is being a bit negative. Under C corporation you pay corporate tax and when you take it out tax on dividend. But you control timing and depending on tax rate both dividend tax and corporate tax may be small.

Because I think he's referring to "substantial gainful activity," which would apply even with a C-Corp - I believe. :\

[michaelmoran]

Corporate taxes are not that bad on income under $100,000, assuming you are not Qualified personal service corporation. Also qualified dividends are tax free if in 15% rate or below, and only at 15% rate until your income gets really big. A lot depends on income level. If your business produces modest income (under $100,000) and your personal income is not that high (under $200,000), then C corporation route in not that bad.

[michaelmoran]

I am not sure what substantial gainful activity means or what problem it creates. I have never heard that test. If you use a c corp and it produces income I do not see problem. I hate to give tax advise here but IRS audits are rare and they do not look at corporations harder.

[billfitzmaurice]

S-Corp - pay personal tax on income that the corp gives me

What happens to what the corp makes that it doesn't give to you? I suppose if you can live without it you can leave it in the corporate coffers, but that means of course that you don't get the money, and the corporation pays taxes on it anyway.

[icor1031]

I'm reposting this from another forum, in case anyone here has advice.

Bill: My reasoning to your question is in the first paragraph after TL;DR

------my limitations are highly sporadic. I might be able to do a reasonable amount of work (assuming the work is conducive to my disabilities) for a couple of years, and then nearly completely unable to do any for over a year.TL;DRIf these are a no-go, do I have any other options

[billfitzmaurice]

Your circumstance requires advice from a professional financial advisor experienced in the specialized field of the working disabled. You may luck out and get that from here or other forums unrelated to the actual question at hand, but I doubt it.

[michaelmoran]

OK, I have no really good answers. The C corp gets you closest to where you want to be, so focus on that. You can control income. So you can meet the income limit. I do not know about the substantial gainful activity test, but it seem reasonable that if you make no salary it is not gainful activity (the salary makes it gainful). The hard part is the asset test. The stock of a c corp is an asset that counts (I think). Now normally stock of a small business is worth the amount of cash in the bank (because no one want to buy stock in a small business).
So the question is what do you do with stock assuming business makes some money. Do you have a trusted family member who can own it? Then how do you get money out of corp to help your situation? Can you borrow from corp. I may think about it a bit and post again, but this is the best I can think of for now.

[michaelmoran]

I also agree with Bill. I am not a professional in the field.