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S-Corp vs. LLC which is Best for Affiliates?

Ryan's picture
Submitted by Ryan on Fri, 05/23/2008 - 16:50.

I was listening again to the audio for this section and still have questions...

1) Jon mentioned that he has a multi-member LLC entity set up (the other member being his wife who is in-active) yet he reccomends the affiliate newbie create a Single Member LLC. Why the difference (other than not being married)?

2)Jeremy and Jon: you both state taking a draw out of an LLC is better than trying to create an S-Corp when your affiliate business is not making "enough" to be considered a full-time job and thus pay a wage.

Since affiliates need every cashflow dime possible to reinvest to grow - is there a fixed/near-fixed dollar amount milestone you would draw the line to switch from LLC to S-Corp?

Here is where I get confused...

If an affiliate makes $5000 per year from their affiliate business x 15.3% SE tax (as an LLC): that is aprox $765 they pay to uncle sam as an LLC rather than investing that profit back into PPC like you could with an S-Corp.

I must have missed something in the audio as to why an LLC is better for noobs than not paying SE tax in an S-Corp. Would either of you please shed some light?

Thanks!!

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jonshaw's picture
Submitted by jonshaw on Mon, 05/26/2008 - 23:32.

Ryan,

It totally depends on everyones individual circumstances. Yeah it would make sense if you made around $5,000 net profit in a business to be an S-Corp and save that money. However, you have to take into consideration that you still have to pay yourself a reasonable wage off of that, file quarterly payroll tax forms, do annual minutes and so forth. So I really don't think you would save time and money being an S-Corp when you do not make that much money.

When it becomes worth it is if you are ready for the hassle of doing quarterly payroll reports/taking a monthly wage and have weighed your options of how much it is going to save you. If you want to put up with the hassle an S-Corp will be better, but will take more time to manage and pay yourself.

I hope this helps.

Best,

Jon

Ryan's picture
Submitted by Ryan on Tue, 05/27/2008 - 00:41.

Thanks for the enlightenment Jon.

You mentioned you are set up as a multi-member LLC with your wife being inactive - is this better/advantageous than a single member LLC for married folks?

Twitter.com/RyanHakes

jonshaw's picture
Submitted by jonshaw on Wed, 05/28/2008 - 04:12.

Ryan,

Yest it is more advantageous since my wife is not active in the business, her portion of the profits/loss is not subject to SE tax which is a huge plus. I recommend doing it if you are married for the long run.

Best,

Jon

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