The net income will be added to his salary to figure out his taxes.
If your company pays you wages, the wages are subject to payroll taxes.
The temptation is to reduce the salary to the bare minimum, or even to
zero. There are a few problems with this. One is that you might get
audited. Another is that you're not paying anything into social
security, unemployment compensation, etc. Yet another is that you
might run into trouble with workmen's comp and (if your company offers
it) health insurance. But the big problem with not paying yourself a
reasonable salary is that this interferes with your exit strategy a few
years down the road when you sell the company: any sane buyer is going
to want to know if the company is profitable even WITH the added burden
of paying the CEO a market-level salary.
If their is no real corporation (usually the case with an LLC), then
revenues and expenses go straight to Schedule C on the 1040 individual
return. A partnership LLC works in a similar way (net income goes straight
to 1040 individual returns of the partners. I assume that is what he is
talking about. Otherwise, there is no reason to form an LLC, and a regular
(or subchapter S) corporation would be formed.
