Welcome to the Small Business Ideas Forum! We are a community of over 100,000 small business folks with over 163,000 posts for you to browse. We pride ourselves on being the friendliest forum you will find and we'd love to have you as a member of our community. Please take a moment and register for a free account. If you need any help, please contact Chris Logan.

Small Business Ideas Forum

Small Business Ideas Forum

A friendly place to share small business ideas and knowledge, ask questions, find help and encourage others that are involved in the small business industry. Topics include small business marketing, generating revenue and small business computing.

Go Back   Small Business Ideas Forum > General Issues > General Small Business Issues
Register Search Today's Posts Mark Forums Read

Thread Tools
Old 25th February 2017, 11:05 AM   #1

Join Date: Feb 2017
Posts: 1
Default LLC Vs. S Corp With $10 Million In Profit

I know there's a lot of information out there about the differences of S Corp vs. LLC vs. C Corp, but I have a specific hypothetical scenario that I would like to seek others' opinion on as to which entity type would save the most on taxes and make most sense given the revenue and business type, and what steps he can take to

1. John comes to the US from China.

2. He already owns T-shirt inventory in China that cost him $5 million which he purchased with his personal funds.

3. He would now like to open a business in the US, and start a web site here in the US to take orders from people in China to sell his inventory directly to people in China (let's set aside the possibility that he can easily just go back to China and make the transactions there without having to do).

4. He opens a business PayPal account and links it to his website so that he can accept credit card payments here.

5. Within one year, he sells every single T-shirt at a total revenue of $15 million. Since the inventory cost him $5 million, his net profit is $15 million minus $5 million equals $10 million.

You can spot at least one issue here, and that is the inventory was not purchased by his US business, and thus it's cost likely cannot be reported as an expense.

Any thoughts here as to how the scenario would have to change in order for him to be able to expense the $5 million purchase?

For example, what if John got a hold of the inventory only AFTER he started his US business, where he went back to China and struck a deal with the manufacturer for $5 million of T-shirts, but only on something like a consignment, where he wouldn't have to fork out any money at the outset. In this change of scenario, what documentation would he need from the manufacturer in order to later use as proof to the IRS that he should only be taxed on $15 million minus $5 million equals $10 million? Must there be a receipt showing that, AFTER he received the $15 million, he paid the Chinese manufacturer the $5 million that he owed?

Now as for taxes on the $10 million in profit, which business entity would be optimal, if he decides to cash out the $10 million in profit at the end of the first year of business for personal use? I would say S corp since there's not double taxation. But then there's that mandatory, reasonable salary requirement.

a. What would you propose he pay himself? Maybe a $100,000 salary? Would that $100,000 then be subject to self employment tax?

b. And then would the remaining $9,900,000 be taxed at the Federal and state level? Federal being 35%. What about state level tax? Is it lower in New York or Delaware? Which state would be best for his situation?

c. Would any of the above work out better if he had an LLC structure instead of an S Corp?

jacksonp2015 is offline   Reply With Quote
Register or log in to remove this ad.


Similar Threads
Thread Thread Starter Forum Replies Last Post
How To Distribute Profit michael187 Small Business Finance 5 4th February 2016 05:57 AM
How would you creat a division under your exsisting C Corp??? Gr8Deziner General Small Business Issues 6 14th April 2012 09:58 PM
LLC, S Corp, C Corp Somiac General Small Business Issues 0 5th September 2009 06:14 AM
Non profit thrift store? syrup General Small Business Issues 2 9th April 2006 05:22 PM
Profit darkstar Small Business Finance 0 23rd November 2005 02:05 PM

Thread Tools

Get Updates
RSS Feeds:
RSS Feed for General Small Business Issues RSS for this Category Only: General Small Business Issues

RSS Feed for Small Business Ideas Forum RSS for Entire Forum
Forum Rules

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Forum Jump

Small Business Ideas Forum

At Your Business - Small Business Directory
Free Business Forms - Prewritten Documents
Search Engine Guide
Small business guide to search marketing

Small Business Brief
Fetching the Best Small Business Info

Used Values - Free Links
Blue Book

All times are GMT -5. The time now is 09:35 PM.

Powered by vBulletin® Version 3.7.3
Copyright ©2000 - 2020, Jelsoft Enterprises Ltd.
Copyright 2004 - 2018 - Privacy