SMLLC, as disregarded entity and owner's pay

[Jim-from-Ohio]

I know they should not be on payroll.. I am getting push back from a client that started a SMLLC and they are trying to tell me it is fine to be on payroll.  I sent them some payroll articles saying how the owner should just take a member draw but they are insisting all their colleagues who started their own LLC pay themselves through payroll.  Besides sending them the articles showing how that is not proper to be on payroll what do you think I should do?  Note: When looking for articlese on the topic I ran across one that said it was ok to be on payroll.. that seemed to be the exception and maybe the author just is not informed on the topic. 

[qbteachmt]

"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.

[IRonMaN]

You have tried to communicate with them the correct way to do things.  If they don't listen, tell them to have a nice day and have them find someone else to do their work.  Life is too short to be wasting time trying to convince someone that doesn't want to listen.

[PATAX]

QB and Iron Man are correct. Since your client thinks that they are Nikola Tesla Jr, then tell them to do their tax return themselves or go to the accountant of their colleagues. 

[abctax55]

".....what do you think I should do?"

Terminate the relationship.  Life is too short to interact with a client that doesn't value your expertise/knowledge.  A question is fine, but once you've answered the question and they 'still push back'... buh bye bye.

[abctax55]

OMG... I just googled SMLLC owner payroll.  There is a Forbes (!) article saying it is OK to do so; it gives a caveat about "reasonable compensation" considerations.   

There's no hope..... one can't battle "I read it on the internet".

[Jim-from-Ohio]

@abctax55 yep.. I ran across one that said it was ok to put owner of disregarded LLC on payroll and to follow the "60/40" rule for ratio of payroll to "dividends".. Three strikes in that one single comment, not just one strike.

[Strongsilence-CPA]

Let us know if:

a. You are billing them for the true worth of the advice

b. They pay it.

Some relationships are worth the time (whether paid or not) and others can't decide that for you.

[TaxGuyBill]

Jim, that sounds like a client that is beyond your 15 minute schedule.  NEXT!

[George4Tacks]

Has the SMLLC filed it's first return? What was the entity selection on that return? Maybe the want to be a Corporation or maybe even better a S-Corp. Maybe you don't have have the whole story. 

[abctax55]

Bill... hell, just reading this thread takes 15 minutes 😘