Two of your friends are horse fanatics. They inherited several acres of land that they turned into a retirement sanctuary for racehorses. Serenity Stables was originally incorporated as a limited liability company. The members are reevaluating this form of ownership. Unlike an S corporation, they now pay self-employment taxes on all company profits-not just on the salaries they pay themselves.

Question

Quizplus · Accepted Answer

While S corporations have several restrictions, one advantage they have compared to the limited liability company is the self-employment tax requirements. Any profits earned by the LLC are considered part of the owner's wages/salary/income. These wages are subject to self-employment taxes. The S corporation pays self-employment taxes only on those dollars designated as salary or wage expenses by the business. They do not pay self-employment taxes on the profits of the business.

Two of Your Friends Are Horse Fanatics