Roulette Man a tax question for you (Partnership vs. S Corp)

I wondered if you could tell me what the tax advantages are of setting up an S Corp vs. an LLC with partnership election. In any given year the profits of the entity are typically less than 150k, but more than 50k and the partners don’t get a regular salary just the profits which they currently pay SS taxes on. Would it be advantageous to set-up an S corp and call the profits dividends?

The IRS has had a huge crackdown on S Corps where inappropriate salaries were taken (in other words the salaries were too low).

This is not my area of expertise. I'm an expert in the area of estates and trusts.

Not really my area of expertise either, but i thought id ask. My thoughts were the whole "resonable salary" thing would make it unfeasable so you confirmed my belief.

If I understand the question correctly, there is currently a partnership, and the issue is whether to organize as an LLC or a corp.

The LLC would be MUCH easier, because it would be a continuation of the exact same business, with ALL the same tax attributes. I.e. there would be no dissolution of the partnership, meaning no special tax return, etc.

Formation of a corporation would be much more difficult, because it would involve a termination of the partnership. This could have some unforeseen consequences, and should be modeled prior to the formation of a corporation.

Termination and formation of a corporation MIGHT have some very advantageous consequences for tax purposes, but in those cases, there is a risk that some aggressive IRS agent would claim the sole motivation for the transaction was avoidance of income tax. So then it would be best to document the non-tax reasons for the change, in the partnership's minutes.

I think the most common reason for switching from Ptr/LLC to corp. is a preference for the State laws governing corporations, e.g. shareholder rights v. ptr rights. There is often some sort of fundamental reorganization or relocation involved, or estate planning considerations. There are also various Federal laws, other than income tax, that apply differently to corps. and non-corps.

That's close. I have an LLC set up as a partnership right now. That business is declineing and going to basically wind down completely over the next five years. I only spend about Five hours a week on this. I have a second business that is currently asending. The profit the first year was rather modest around 5k but this is where all the growth is and I spend 40 hours a week on this. I Just claimed this income as a solo. I am debating if I should organzie this new project as an LLC or S Corp.

The most important advantages of the corporate form would be any special treatment allowed to corporations under various Federal laws (e.g. the Small Business Administration), and the fairly strict codification of rights and responsibilities under State corporations laws (e.g. issuance of preferred stock).

But again, there are significant tax issues involved in the formation of a corporation to absorb an existing business which has already become a taxable entity (an existing FEIN business). If the only assets are bank accounts, it should be fairly simple, but it's still possible you might end up losing some tax benefits. There is probably an IRS publication that addresses this process in detail.

Something that might be problematic is if you recently took a Section 179 deduction.