Social Security and Medicare taxes that are generally paid by employees and employers are combined to form the self-employment tax. The employee and employer components of these taxes, however, must both be paid when you work for yourself.
You are regarded as self-employed and are required to pay self-employment tax on your net self-employment income if you are a sole proprietor, a partner in a partnership, or an LLC member. 15.3% is the current self-employment tax rate, with 12.4% going to Social Security and 2.9% going to Medicare.
Why should your company adopt an LLC?
The restricted liability protection that an LLC offers is one of its key benefits. This can shield you from personal liability if your company is sued because it signifies that your personal and corporate assets are distinct. An LLC can also provide tax advantages, administrative flexibility, and ease of creation and upkeep.
An LLC can provide tax advantages in addition to the restricted liability protection already described. An LLC is taxed by default as a pass-through entity, which implies that the company does not pay taxes on its own income. Instead, the owners receive a pass-through of the profits, which they then declare on their personal tax returns. The overall tax burden for the business owners may decrease as a result. Who pays more in taxes, an LLC or a S Corp?
It depends on the particular business situations. Generally speaking, S Corporations can provide tax benefits to companies with bigger profits. This is so that profits can be distributed without self-employment taxes being paid on the share designated as dividends, which is made possible by S Corporations. S Corporations, on the other hand, have more stringent ownership and management rules, which might not be appropriate for all firms.
The particulars of the business and its stakeholders will determine the optimum tax structure for an LLC. An LLC is taxed by default as a pass-through entity, which might reduce your overall tax liability. An LLC can, however, elect to be taxed as either a C Corporation or a S Corporation, which may provide tax benefits for specific enterprises. A tax expert should be consulted to identify the ideal tax structure for your particular circumstances.
In conclusion, if you work for yourself in Kansas, you must pay self-employment tax on your net self-employment income. Limited liability protection and tax advantages may come from forming an LLC, but your unique situation will determine the optimal tax structure for your company. To make sure you are fulfilling all of your tax requirements and taking advantage of any potential tax benefits, it is crucial to speak with a tax expert.