My question is regarding choosing the type of corporate entity that best suits our situation...
My wife runs a small event planning business, last year's revenue was about $40K, next year will probably be similar. It is a sole proprietorship currently. I am not an employee of the business, but listed as a general partner on the tax license.
My job as a software engineer is not super secure at the moment, so we'd like to have her company structured in a way that if I lose my job we can get group health insurance for her company (private plans are not an option for various reasons). Currently, insurance companies that offer group plans, need to see the company incorporated as an LLC/Corp for a number of months and have at least 2 employees. From what I gather, employees of a Corp need to be paid "reasonable" wages and this is an area of scrutiny for the IRS so people aren't abusing the lower tax rates of dividends. I imagine that health insurance companies would also want to see that I'm actually being paid by the entity if I'm going to be considered for group plan membership.
So what I'm wondering is what it looks like to pay two employees reasonable salaries in a company that doesn't make enough money to do so. And then, how do the different tax scenarios of the entity types possibly prevent this from even being a financially good idea. Or, is there a structure that would make this financially beneficial since there isn't much revenue and if the entity was taxed, after salary and benefits deducted, there will be hardly any corporate tax. But some of these scenarios raise little questions that I don't know about, like what does it look like if there isn't cash to pay salaries at some point.
The company currently pays a handful of part time employees as contractors. Revenues come from contracted services and commissions from vendor affiliates. No plans for outside investment. Possibilities of future employee ownership probably isn't worth swaying the new structure chosen, but easy addition of future w2 employees with benefits is.
Thanks for feedback,