qbteachmt
Level 15

"but they are insisting all their colleagues who started their own LLC pay themselves through payroll"

My mother used to say, "Just because everyone else is doing it, doesn't make it right."

I've seen many who are advised to contact ADP and think that includes them on payroll.

I teach this as: You are not a cost to your own business, because, as a Sole Proprietorship, you are the business. There is no differentiation in the entities. The business is all yours, and you take money any time you want to. The taking or not, is not the taxable event (thankfully). You know this, because you file the Sched C at the end of the year, and that's when everything is reported.

And for the opposite, explain how corporations are their own entity, and this separates self from business. The Supreme Court ruled that Corporations are people, too, in Citizens United. A corporation cannot run a business. It isn't a human. It hires humans. That's why shareholders are on payroll.

LLC is a State construct to try to shelter assets from liability issues. It is neither of the above, until you elect a specific tax treatment, such as SMLLC is treated as SP and multi-member is partnership or S Corp.

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