"Compensation of Officers" for single-shareholder LLC w/S corp. tax treatment?

Question

I have a single-shareholder LLC under subchapter S.
In my spare time I get a little bit of work translating legal documents (English-Finnish, English-German). For 2007 it probably looks like $ 6,843.79 of gross receipts. I would declare as "wages" $ 1,640.32, or about 4.2:1 receipts:wages.

My questions:
1) is that a decent ratio of receipts:wages, or could a person potentially be able to get sth better?
2) "compensation of officers": if I am the sole shareholder of the LLC with S corp. tax treatment, could I give myself a small compensation as officer w/o having to figure it in as "wages"? $200? more?

Thanks much!

Thanks very much for your answers! To respond to some questions:

In deciding to set up an LLC and pay some "wages", I was thinking: (1) I'm not a CPA but am an attorney licensed in the U.S. My law prof in a corporate tax course said, "as an attorney, a person could pay 4:1 - 5:1 and not get audited. I've never seen anyone get audited with that. But 10:1, 20:1 - you're asking for it." But I'm not a CPA, and I don't really know what will still work.
Also, these receipts in question aren't coming from attorney work (which is something separate for me tax-wise); I am an attorney though as my main job.
2) the other reason is conscience, I'm afraid. The money is flowing outside the U.S. but I'm doing the work in the U.S. and am a U.S. citizen - impossible to audit though as to this money. Just, I had a crisis of life a few years ago, since then I try to be more open but I still want the best tax treatment. If I were a CPA, I would probably know the best route.
Thanks again!

Answer 1

Your amounts are so small, they would never hit the IRS "radar.' They are looking for people who earn substantially more, say $30,000, $50,000 or $100,000 and pay no payroll to avoid all payroll taxes. Those "hogs" get slaughtered. All of their S Corp "dividends" can be reclassified as salaries. They usually don't go after people who pay a "reasonable" salary. Yours seems very reasonable to me, but again it is so small, it would never hit their "radar.' They have much bigger fish to fry.

Jim Kirby, CPA

Answer 2

It's really immaterial. Any remaining profit will flow directly to your personal return since you're treating it as an S-Corp. (Contrary to what another posted, it will be subject to SE taxes.)

What I'm curious about is why you would set up an LLC for this type of venture. There's no tax advantage -- in fact state taxes are often higher -- and your business doesn't seem to be risky enough to warrant LLC treatment. And why would you complicate a single-member LLC by treating it as an S-Corp? Sorry, but that's just absurd!

Answer 3

In majority of cases, this would have been done in this way:
Do the translation work. Keep record of income and expenses. Then with your tax return file schedule C (Form 1040) Profit and Loss from Self Employment to report your income and expenses to figure out net profit. The net profit (or loss) will be added to the other income and is taxed. This income is also subject to SE tax at 15.3%.

Now if someone want to be safe from legal problems, then he/she will register it as a Single Person LLC, which is for federal tax purpose same as sole-propertier who files schedule C.

Why would someone want to make single person LLC treated as S-corporation? S-corp files its return, distributes its profits to its share holders and issues form K-1. A sole shareholder will report the entire profit as income. K-1 income is subject to self employment tax at 15.3%.

Answer 4

as a partnership all profits/losses, donations, depreciation etc flow thru to the partners and partners are not employees, they will file their Sch C on the profit that is shown on the K1 from your story I am not sure you understand the structure either employers have an EIN and file quarterly taxes and reports on the employees of the company, and issue year end reports, including w-2's to the employee A Circular E will be necessary to determine how much income tax, and other taxes are required to be withheld per payroll and as such, State ID # is required as well

Answer 5

I don't get it. If you have S corporation treatment, why not treat all of the earnings as dividends and avoid employment taxes on your earnings?