If your industry requires practitioners to be licensed by a state licensing board then you likely cannot organize as an LLC because you are considered a professional service company. You can however register as a Professional Limited Liability Company (PLLC) which is a bit different.
Is it a good idea to have your spouse as a member in your LLC to make it a multi-member LLC? While it is often better to have an unrelated 3rd party be a member in your LLC, having a spouse as a member can work if you follow 3 rules.
Paying Taxes at The Corporate Level Is Undesirable for Most Small Businesses, So the LLC Was Born. To Avoid Being Considered A Corporation by The IRS, You Can’t Look Like One. There Are Four Selectable Characteristics that Are Common to Corporations. As an LLC, You Can Only Pick Two Of The Four.
There are a number of common mistakes many founders make that can destroy everything they worked so hard to achieve. Most occur when there is some business success. Some mistakes are made out of ignorance during the initial filing process with the Secretary of State and others are the result of failing to finish the process.
In some cases, all the members of an LLC may be investors only and not managers. The business may hire an outside general manager (employee) to make the day-to-day decisions, and therefore, acts as the manager. In this case, the general manager is an employee of the business, but since they are not a member (aka owner), their income is just like that of an employee in any business.
When you have an investor in your LLC, who works less than 500 hours in a given tax year for the LLC, and they do not participate in its management, they are considered limited in their liability and their income is usually considered passive income subjecting the income to only federal and state income taxes based on their marginal tax rate.
A member in an LLC that is a decision-maker (manager) is considered an employee of the business by the IRS and is treated differently than non-manager members. Income for managers is considered earned income and is subject to additional taxes but also to additional potential tax deductions. Moreover, as a manager, you are exposed to additional liabilities.
As a sole proprietor or as a single-member LLC you are the only owner, and as a result, you do not take a salary or a wage from a business. Instead, you can simply take out excess cash from the business, which is known as an owner draw, to pay yourself.
How you pay yourself as an owner depends on the type of entity you are and how many owners there are. This post lays the groundwork and defines a few terms that should help demystify how entities pay the owners of the business.