DO I NEED ONE?
If you are not a PLLC, you are operating as a sole proprietor. As a sole proprietor, your broker pays your commission to you as an individual under your social security number. With a PLLC your commission is paid to the PLLC, using the PLLC's Federal Tax ID number. The sooner you establish your PLLC, the sooner you can begin avoiding self-employment tax on your commission.
To illustrate this, let's compare operating as a sole proprietor vs. a PLLC taxed as an S Corporation.
Sole Proprietor vs. PLLC taxed as an S Corporation
-
SOLE PROPRIETOR
SOLE PROPRIETOR
SOLE PROPRIETOR
SOLE PROPRIETOR
SOLE PROPRIETOR
PLLC (S CORP)
SOLE PROPRIETOR
Commission Income
Commission Income
Commission Income
Commission Income
Direct Business Expenses
Auto Expense
$100,000
Commission Income
$100,000
$30,000
$10,000
$100,000
Commission Income
$100,000
$30,000
$10,000
Net Income
Net Income
Net Income
Deductible Self-Employment Tax
Regular Income Tax
$60,000
Net Income
Net Income
($4,239)
$2,578
$60,000
Net Income
* Self-Employment Tax
-----------
$2,986
* Self-Employment Tax
* Self-Employment Tax
* Self-Employment Tax
Total Tax Owed
Effective Tax Rate
$8,478
* Self-Employment Tax
$8,478
$11,056
18.5%
$0
* Self-Employment Tax
$8,478
$2,986
5.0%
* Assumptions: Year 2020, married filing joint status, standard deduction, zero dependents, and Section 199A deduction.
Please note your individual tax savings may differ from above based on your specific circumstances and the amount of reasonable compensation declared.
Total Tax Savings - Before Salary
This website uses cookies.
We use cookies to analyze website traffic and optimize your website experience. By accepting our use of cookies, your data will be aggregated with all other user data.