Question

Dave and his friend Stewart each own 50 percent of KBS. During the year, Dave receives $50,000 compensation for services he performs for KBS during the year. He performed a significant amount of work for the entity and he was heavily involved in management decisions (he was not a passive investor in KBS). After deducting Dave’s compensation, KBS reports taxable income of $48,500.

How much FICA and/or self-employment tax is Dave required to pay on his compensation and his share of the KBS income if KBS is formed as a C corporation, S corporation, or a limited liability company (ignore the .9 percent additional Medicare tax)? (Do not round any percentage calculations. Round other intermediate calculations and final answers to the nearest whole dollar amount.)

C corporation
S corporation
Limited liability company

Answer 1

Description	C Corporation	S corporation	LLP	Explanation
1) FICA	$3,825	$3,825	0	$50000 salary 7.65%
2) Self employment income from entity compensation	0	0	50000
3)Self employment income from portion of entity business income	0	0	24250	48500*50%
4)Total self emplyment income	0	0	74250	(2) + (3)
5)net earning from self employment	0	0	68569.88	(4) * .9235
6)Self Emplyment tax	0	0	10491	(5) *15.3%
7) total FICA & self emplument tax paid by Dave	3825	3825	10491	(1) + (6)
8) FICA tax paid by entity	3825	3825	0	50000 salary * 7.65%
9) total FICA / self emplyment tax	$7,650	$7,650	$10,491	(7) + (8)