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Schedule C CPA discusses SMLLC Tax Preparation

CPA Wilmington NC Schedule C tax preparation for SMLLC

Schedule C tax preparation for a SMLLC is as complex as any other type of business tax return.

Schedule C CPAs saw SMLLCs  (Single Member Limited Liability Companies) proliferate during the recession—grooming dogs in the garage, handyman services, freelance writing, website design from the spare room, etc. If run by one person, a new company is a sole proprietorship by default (with the IRS) and must file Schedule C as part of the owner’s annual Form 1040. The IRS uses the term self-employed interchangeably with sole proprietorship. A sole proprietor can choose to become a Single Member Limited Liability Company (SMLLC) through registration with the Secretary of State.

“A SMLLC provides personal liability limitation for the Member, even though the SMLLC still files Schedule C. This reduces one of the three problems inherent in being self-employed.”
– Gary Bode, Schedule C CPA

Schedule C Problems

  • The IRS audit rate is higher with Schedule C.
  • Unless you become a SMLLC, you have greater personal liability for your business. If the company gets sued your personal assets are at risk. The SMLLC provides some protection.
  • You pay self-employment tax on Schedule C profit.

Schedule C Solutions

  • When we prepare Schedule C, we assume it will be audited. So we build a bullet proof return with documentation for all the numbers. Audits are never fun, but you don’t have to live in fear of them.
  • Run your SMLLC professionally. Then Schedule C takes care of itself.
  • Becoming an S Corporation reduces your chance of IRS audit. There are tradeoffs of course. Discuss it with your Schedule C CPA.
  • Becoming an SMLLC reduces your personal liability for the company. So, if your company loses a lawsuit, there could be some protection of your personal assets from the judgement. The same is true with an S Corporation.
  • Becoming an S Corporation allows some profit to escape self-employment tax. This can save thousand a year in taxes. But look at the big picture and think things through first.

Other IRS Tax Options for Companies with One Owner

A company with one owner cam choose to taxes in the following ways:

  • Sole proprietor. Files Schedule C.
  • SMLLC. Files Schedule C.
  • S Corporation. Files Form 1120-S.
  • C Corporation. Files Form 1120.

Documentation

Good documentation is vital for SMLLC Schedule C tax preparation. A mileage log is a good example. You can deduct mileage on Schedule C. Most SMLLCs track total mileage and business mileage. But some Schedule C taxpayers track total mileage and personal mileage. The mileage log must be written. You can no longer use estimates.

Estimates

Ironically, my experience with SMLLC(s) who estimate expenses for tax preparation, actually under-estimate! So good documentation usually means lower taxes.  It literally pays to be organized.

I’m a Schedule C CPA with a virtual office to serve your SMLLC wherever it operates. Call for a free consult. (910) 399-2705.

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