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Updated almost 5 years ago,
Seriously thinking about starting S-Corp or LLC taxed as S-Corp
A little background.
I am a W-2 earner. My employer also provides a high deductible (HSA) eligible health insurance plan for my wife and me.
My wife had a side business and a W-2 job but this year she decided to go full time with her business at the beginning of the year (Resume writing and career coaching). To date she has made about $11,000. Expenses are minimal (Maybe $3-5k for the year is our estimate).
We are residents of Florida but are digital nomads traveling full time across the country. I am unsure of when we will stop or our final state of residency.
So that brings us to should we S-Corp or Not.
In the last we just did the schedule C and moved on. Our taxes were not support complex and we did them ourselves (Just Schedule C and E) so I think that this is going to vastly complicate our taxes and likely require actually hiring a CPA.
So here is why I’m thinking this is a good idea:
1) We get to reduce the SE tax by drawing a wage.
2) We would like to max a Solo-401k for my wife, my understanding is that the 25% employer match would also not be subject to FICA or SE tax.
3) The company could potentially contribute to an HSA account, again not subject to FICA or SE tax (I’ve heard mixed things on this).
So now what I’m wondering:
1. In this case, is there a difference between an S-Corp and an LLC taxed as an S-Corp?
2. I assume I want to do this in Florida? Any downsides?
3. What are my expected costs to setup this and my ongoing expenses? What about payroll processing or unemployment insurance?
4. What sort of a time commitment is required to administer something like this?
5. Are my assumptions about the Solo-401k and HSA correct?
The main thing I’m trying to pencil out is if the tax savings on this is going to be worth the hassle of administration, especially with QBI diminishing the relative savings.