Hey Everyone, Boris here. Check out some resources here (expand to see more): 🆓 Download FREE PDF: 7 Write Offs Every S-Corporation Business Owner MUST Know bit.ly/3DPw5UZ ☎ Schedule your FREE Tax Advisory Session - www.TaxPlanningCall.com/ 👉 Make sure you SUBSCRIBE so you do not miss out on future tax-saving tips and strategies - bit.ly/3AXHUtM Also, I put together some recommended videos. I strongly recommend every business owner to watch this. Just watching these alone will help you save money on taxes, RIGHT AWAY. And please, do your self a favor, get a Tax Advisor! ➡ Business Owner Pays Tax On S-Corpporation Distribution - ruclips.net/video/TwvBjCWeelw/видео.html Watch this video to learn how to NOT pay taxes on your distributions from S-Corporation. ➡ Pass-Through Entity Taxation - ruclips.net/video/4mZ72rGRw2s/видео.html I urge every business owner to know about this TAX. These taxes will ACTUALLY help you pay less in taxes. ➡ Home Office Tax Deduction - ruclips.net/video/imdrzX8fooY/видео.html In this VIDEO, I break down how the IRS allows you to use your home office EVEN if you already have another work location. ➡ Tracey, our Tax Advisory Client, Saved over $49,000 on taxes in 2022. - ruclips.net/video/aAgK40Yqsws/видео.html In this video, I break down the exact strategies we use for our clients to pay less in taxes.
I've been searching EVERYWHERE on YT for a video better explaining tax season as a Single Member sole LLC. and im so happy I found yours! finally a lot of things makes sense to me now,, thank you
@JoWabbie your gratitude makes me nervous that maybe you did not understand that he spent most of the video explaining SCorp shareholder distributions. These do not apply to a single member LLC filing on a schedule C on their 1040 tax return, which it sounds like you are. Schedule C filers do not ever pay themselves payroll, and after the net profits are taxed as income they pay an additional 15.3% Self Employment tax on all of the net income. That hits a lot of Sch C filers hard, but you should know that the money goes toward paying into your social security record. Once your business net profits can support paying you a salary and the taxes that go along with that, you can make an SCorp election so that you are only paying into FICA that 15.3% on your salary and not on all net profits. SCorps have to file a separate 1120S tax return and quarterly employment returns (more paperwork, time, and expense) so the SCorp election is usually only made once your net profit gets high enough to pull salary and have a good amount left over.
Omg, i m ready to file my s corp taxes. Thank you so much!! I was not sure what my starting basis would be!! And thank you for advising me noy to zero out the business account.
You don't have to pay quarterly estimated taxes. Withheld taxes are not considered late so you can pay it as one lump sum at the end of the year (before the 15th January of the next year) by withholding the taxes. It of course requires you to plan ahead so there is enough withheld to pay the total taxes. I have an S-corp, so I solve it by only paying myself a salary at end of the year and withholding the taxes from that. It is a somewhat known loophole. Makes the administration a little bit easier.
Question, My CPA says I need to take a higher W2 salary vs. taking owner's distributions because the IRS is going to get upset over not paying medicare and fica, would you agree?
@gunstin1104 You did not really give him enough information to go on. Look at how much you are paying yourself now. Is that what you would accept as pay to work for someone else doing everything you are doing? Is that what it would cost you to hire someone else to do your job? Can you justify that amount based on local prevailing wages? Those are the questions I would want to be comfortable with. The IRS verbiage is “reasonable compensation”. Many accountants split the profits between salary and distributions, but I think that fluctuating the salary wildly from year to year based on net profit makes more of a case that the salary is not reasonable. The IRS does say that if cash or property or the right to receive cash or property goes to the shareholder then a salary amount must be determined and that amount must be reasonable and appropriate. Shareholder distributions fit this. I think that wording is why accountants apply a formula to determine reasonable salary. I do not agree with that interpretation, but until the IRS or the court comes out with a specific formula or clearer guidance there are going to be several differing viewpoints. See the below fact sheet to help you make a determination and discuss with your CPA. FS-2008-25, August 2008
You have to pay yourself a "reasonable salary" compared to what others are paid in that industry = according to US Labor Statistics: go to their website - look up your industry - look up your job/title and see the average salary paid for that job/title...to be frank, your accountant should have done this for you and told you what your salary should be = it'd probably be wise to also do a solo ROTH 401k to reduce the amount of taxes paid on your salary!
Learned a truck load of info. So for the 600k profit would be taxed at 15% leaving 510k which then I can distribute 250k owner dist and leave 260k in bank account for later investments without being taxed? Or am I missing something?
I think this video confused you more than helped. Put the 15% tax out of your head. The SCorp will file taxes, but will not pay tax on the corporate level. Instead when it files the 1120S corporate return it passes net profit/loss to the shareholders via a form called the K1 at whatever their percentage of ownership is (if you own 80% of the company, then you pay 80% of the tax on your personal tax return. It will not be taxed at the same percentage to each shareholder so you cannot just say X percentage of tax. Tax is based on your ordinary income rate and will vary based on your whole tax picture. (Someone who is married can make twice as much as someone who is single and be taxed at the same rate. ) If you are 100% owner then you will pay tax on the 200,000 the company paid you in wages and the net profit of 600,000 = 800,000 and will be taxed at your ordinary income rate. Any distributions you take out of that 600,000 have already been taxed and so you can leave it in the bank or take it as a distribution, either way it has already been taxed.
@@julesclifford5137shareholder distributions have no effect on your taxes because you were already taxed on 100% of the net profits on your personal tax return. Or will be taxed if you have not filed on those profits yet. Taxes are based on how much the profits were, not on how much of those profits you put in your pocket through a distribution.
Isnt an S corp a pass through entitty? I thought the meaning of that is any profits made in the S corp is passed onto the shareholder... in this case if i am the only shareholding i get 600k profit to me... wouldnt that be taxed?
Can you clarify the Henry example. The business made 1.5 M gross revenue. 700k was the expense. The owner took 200k salary. That leaves 600k. You said owner can transfer 250k to his account and not pay tax. You said, Next year he transferred the remaining 350k to his account without tax. So the entire 600 k profit got transferred to his account (250+350 k) without any tax. So how much was the tax and where did the money come from to pay the tax on the 600k profit in the first place ?
The idea he presented is confusing. Doesn’t matter how much Henry take out as the distribution and how much stays in the bank account, the 60K is taxed with Henry personal tax filling.
Hey Boris- I have worked with a tax advisor, CPA.,i do take distributions, but when they did my taxes, they always mark "$0" distributions. Why would that be especially since you don't get taxed on it?? That's always confused me.
When taking money out of your bank account as a distribution and putting in your bank account. Do you have to pay taxes on that distribution on your personal income tax return? Isnt it considered income?
What matters is what's in your tax return(s)...not so much the flow of the money. You might take a distribution in 10/2023 against cash that's been the corp checking since 2021 and already accounted for in some other tax year. Your books and how you file is what matters.
You do not need to pay tax on the distribution because it is money you were already taxed on when you reported the K1 earnings on your tax return. You just cannot withdraw distributions in excess of your basis.
@borismusheyevcpa question S-corp shareholder would pay no taxes even if he/she withdraw more than initial investment/capital. I mean if shareholder started business with $15,000 of her/his money. Once company has profit he/she wants to withdraw $30,000 and continue to withdraw every year the same amount. Only wants a minimum of wages to be incompliance with S-corp regulations.
Their basis would change from 15,000 based on the net profit, contributions, distributions, and liability of the company. It would not stay at 15,000. They cannot take more than their basis. They pay tax each year on the net income. I know he said no taxes, but that is because the income was already taxed, so distributions based off of that net income are not taxed.
Saying that you can pull the remaining $350,000 the following year is misleading because there will not be $350,000 left the following year, as a lot of that $350,000 will be gone because it is used to pay taxes on the $600,000 profit, which will likely be at least $100,000
Great video.... one question.... I am a sole person S-Corp..... my tax person did a K1 that I added $24,000 to my personal taxes..... is that where I paid taxes on my profits in the S-Corp or should I be paying another way? Thank you
If. you look on Page 3 of the 1120s you will find line 16C Enter it there and then it will also go on Page 5 at the bottom in the M2 section line 7. If you are using software from there it should automatically flow to the k-1's. Hope that helps.
I withdrew too much of an owner's distribution. I was not aware 3rd party loans were not classified as owner' s contribution. How can 8 avoid capital gains tax
I have a SMLLC taxed as an S-Corp. I use this SMLLC as my holding company for all my IP, trademarks, etc. I wanted to start a new operating LLC taxed as a Partnership to save on Social Security/Medicare taxes. Is it legal (in the eyes of the IRS) to have my SMLLC/S-Corp to be one of the Partners along with me (under my personal name) in this LLC/Partnership? (Example: Partner 1 = SMLLC/S-Corp and Partner 2 = Me). I would be the only "human" in this operating LLC/Partnership. Appreciate your thoughts on this.
How much tax he pay on 600k if he draw entire amount vs choose to keep the entire 600k in business. I think it is almost the same.. can somrone do the math..
You are correct. I think he was just clarifying that distributions themselves are not taxed. The profits were already taxed so you can take distributions on whatever profit is left as long as distributions do not exceed your basis.
@borismusheyevcpa I am filing my 2021 taxes selected as a S corp in which I am 100 percent shareholder. I took out excess distribution. How do i avoid excess distribution capital gains tax.
@tiffanyipsen9812 Single owner SCorps also have an amazing tool that no one else has. If you do not have any employees (aside from yourself and a spouse) you can sock a lot more money away for retirement than the government allows for any other person. This is done through a retirement plan called a Solo401k.
The shareholders of an S corp pay income tax on the corporation's earnings, not the amounts which they take out in cash. This is why S corps, like partnerships, are sometimes called "pass through entities." The S corporation doesn't pay tax on its earnings; the shareholders report the corp's income on their personal tax returns, and pay personal income tax on the S corp earnings. This is completely separate from what the shareholders take out of the corporation's bank account as distributions. Sometimes a difficult concept, but that's the whole point of S corporations.
@@richardbryanesq please edit. You misspoke. There is an indeed an SCorp tax return. It is form 1120S. SCorps file a tax return, generate a K1 for each shareholder, and the shareholders pay the tax. I think you meant to say that SCorps do not pay income tax, their shareholders pay it instead.
@@borismusheyevcpa Boris, I know my starting basis, I have calculated distributions based on my business account statements, took out business loans from 3rd parties, now are these cash I distributed from my business loans to myself called distributions??
Guy makes video with good information, promotes himself and his business twice...for 10 seconds. C'mon, this is how he provides for himself and his family. I don't see anything wrong with spiking his hustle and chasing the American dream!
Hey Everyone, Boris here. Check out some resources here (expand to see more):
🆓 Download FREE PDF: 7 Write Offs Every S-Corporation Business Owner MUST Know bit.ly/3DPw5UZ
☎ Schedule your FREE Tax Advisory Session - www.TaxPlanningCall.com/
👉 Make sure you SUBSCRIBE so you do not miss out on future tax-saving tips and strategies - bit.ly/3AXHUtM
Also, I put together some recommended videos. I strongly recommend every business owner to watch this. Just watching these alone will help you save money on taxes, RIGHT AWAY. And please, do your self a favor, get a Tax Advisor!
➡ Business Owner Pays Tax On S-Corpporation Distribution - ruclips.net/video/TwvBjCWeelw/видео.html
Watch this video to learn how to NOT pay taxes on your distributions from S-Corporation.
➡ Pass-Through Entity Taxation - ruclips.net/video/4mZ72rGRw2s/видео.html
I urge every business owner to know about this TAX. These taxes will ACTUALLY help you pay less in taxes.
➡ Home Office Tax Deduction - ruclips.net/video/imdrzX8fooY/видео.html
In this VIDEO, I break down how the IRS allows you to use your home office EVEN if you already have another work location.
➡ Tracey, our Tax Advisory Client, Saved over $49,000 on taxes in 2022. - ruclips.net/video/aAgK40Yqsws/видео.html
In this video, I break down the exact strategies we use for our clients to pay less in taxes.
Good to know I don't need to pay tax on my distribution, thank you.
Thanks Boris. I own an S Corp and this video was very helpful
I extremely like the video, man. Very helpful and informative. Thank you very much. It is presented so well too. Great, positive work.
Great video as always Boris!
Awesome Boris - You are great and awesome unfortunately I cannot afford you but the videos are great and Manymany thanks !!!!!!!
very helpful, thank you so much for your tips. your 7 write offs are very helpful!!
Very helpful and understandably presented
Thank you so much. Your explanations are clear and I learned much just from this first video. I can't wait to watch more
I've been searching EVERYWHERE on YT for a video better explaining tax season as a Single Member sole LLC. and im so happy I found yours! finally a lot of things makes sense to me now,, thank you
Happy to hear that!
@JoWabbie your gratitude makes me nervous that maybe you did not understand that he spent most of the video explaining SCorp shareholder distributions. These do not apply to a single member LLC filing on a schedule C on their 1040 tax return, which it sounds like you are.
Schedule C filers do not ever pay themselves payroll, and after the net profits are taxed as income they pay an additional 15.3% Self Employment tax on all of the net income.
That hits a lot of Sch C filers hard, but you should know that the money goes toward paying into your social security record.
Once your business net profits can support paying you a salary and the taxes that go along with that, you can make an SCorp election so that you are only paying into FICA that 15.3% on your salary and not on all net profits.
SCorps have to file a separate 1120S tax return and quarterly employment returns (more paperwork, time, and expense) so the SCorp election is usually only made once your net profit gets high enough to pull salary and have a good amount left over.
Answered the question I was looking for. Thanks.
Wish we had seen your video earlier....Subscribed now.
wow Such great information. Thank you!!
I find your video is very informative, and easy to understand. Thank you for sharing your knowledge with us.
Great video Boris, please put out more content.
Very clear explanations and break downs. Thank you!
Omg, i m ready to file my s corp taxes. Thank you so much!! I was not sure what my starting basis would be!! And thank you for advising me noy to zero out the business account.
very educative, thank you.
Surprised with such good information. Thank you.
Helpful, thank you!
Very informative. Thank you!
Glad it was helpful!
You don't have to pay quarterly estimated taxes. Withheld taxes are not considered late so you can pay it as one lump sum at the end of the year (before the 15th January of the next year) by withholding the taxes. It of course requires you to plan ahead so there is enough withheld to pay the total taxes. I have an S-corp, so I solve it by only paying myself a salary at end of the year and withholding the taxes from that. It is a somewhat known loophole. Makes the administration a little bit easier.
Question, My CPA says I need to take a higher W2 salary vs. taking owner's distributions because the IRS is going to get upset over not paying medicare and fica, would you agree?
@gunstin1104 You did not really give him enough information to go on. Look at how much you are paying yourself now. Is that what you would accept as pay to work for someone else doing everything you are doing? Is that what it would cost you to hire someone else to do your job? Can you justify that amount based on local prevailing wages? Those are the questions I would want to be comfortable with.
The IRS verbiage is “reasonable compensation”. Many accountants split the profits between salary and distributions, but I think that fluctuating the salary wildly from year to year based on net profit makes more of a case that the salary is not reasonable.
The IRS does say that if cash or property or the right to receive cash or property goes to the shareholder then a salary amount must be determined and that amount must be reasonable and appropriate. Shareholder distributions fit this.
I think that wording is why accountants apply a formula to determine reasonable salary. I do not agree with that interpretation, but until the IRS or the court comes out with a specific formula or clearer guidance there are going to be several differing viewpoints. See the below fact sheet to help you make a determination and discuss with your CPA.
FS-2008-25, August 2008
You have to pay yourself a "reasonable salary" compared to what others are paid in that industry = according to US Labor Statistics: go to their website - look up your industry - look up your job/title and see the average salary paid for that job/title...to be frank, your accountant should have done this for you and told you what your salary should be = it'd probably be wise to also do a solo ROTH 401k to reduce the amount of taxes paid on your salary!
This helped me so much, thank you!
Thank you for your info. . .
Very helpful thank you 🙏
This answered so many questions! 👏
Happy to hear!
Thanks so much
Thanks for the info!
Learned a truck load of info. So for the 600k profit would be taxed at 15% leaving 510k which then I can distribute 250k owner dist and leave 260k in bank account for later investments without being taxed? Or am I missing something?
I have the same question. Can you also clarify is the Shareholder Distrabutions (S-Corp) would effect the Income Tax Bracket for that calendar year?
I think this video confused you more than helped. Put the 15% tax out of your head. The SCorp will file taxes, but will not pay tax on the corporate level. Instead when it files the 1120S corporate return it passes net profit/loss to the shareholders via a form called the K1 at whatever their percentage of ownership is (if you own 80% of the company, then you pay 80% of the tax on your personal tax return. It will not be taxed at the same percentage to each shareholder so you cannot just say X percentage of tax. Tax is based on your ordinary income rate and will vary based on your whole tax picture. (Someone who is married can make twice as much as someone who is single and be taxed at the same rate. )
If you are 100% owner then you will pay tax on the 200,000 the company paid you in wages and the net profit of 600,000 = 800,000 and will be taxed at your ordinary income rate.
Any distributions you take out of that 600,000 have already been taxed and so you can leave it in the bank or take it as a distribution, either way it has already been taxed.
@@julesclifford5137shareholder distributions have no effect on your taxes because you were already taxed on 100% of the net profits on your personal tax return. Or will be taxed if you have not filed on those profits yet.
Taxes are based on how much the profits were, not on how much of those profits you put in your pocket through a distribution.
Isnt an S corp a pass through entitty? I thought the meaning of that is any profits made in the S corp is passed onto the shareholder... in this case if i am the only shareholding i get 600k profit to me... wouldnt that be taxed?
Can you clarify the Henry example. The business made 1.5 M gross revenue. 700k was the expense. The owner took 200k salary. That leaves 600k. You said owner can transfer 250k to his account and not pay tax. You said, Next year he transferred the remaining 350k to his account without tax. So the entire 600 k profit got transferred to his account (250+350 k) without any tax. So how much was the tax and where did the money come from to pay the tax on the 600k profit in the first place ?
LOL
The idea he presented is confusing. Doesn’t matter how much Henry take out as the distribution and how much stays in the bank account, the 60K is taxed with Henry personal tax filling.
Every dollar distributed from the S Corp must pay taxes. The distributed portion is taxed with individual tax filing. The title is misleading!
Thank you
Hey Boris- I have worked with a tax advisor, CPA.,i do take distributions, but when they did my taxes, they always mark "$0" distributions. Why would that be especially since you don't get taxed on it?? That's always confused me.
thanks for this video.
Excellent information
When taking money out of your bank account as a distribution and putting in your bank account. Do you have to pay taxes on that distribution on your personal income tax return? Isnt it considered income?
I had the same question.
What matters is what's in your tax return(s)...not so much the flow of the money. You might take a distribution in 10/2023 against cash that's been the corp checking since 2021 and already accounted for in some other tax year. Your books and how you file is what matters.
You do not need to pay tax on the distribution because it is money you were already taxed on when you reported the K1 earnings on your tax return.
You just cannot withdraw distributions in excess of your basis.
@borismusheyevcpa question S-corp shareholder would pay no taxes even if he/she withdraw more than initial investment/capital. I mean if shareholder started business with $15,000 of her/his money. Once company has profit he/she wants to withdraw $30,000 and continue to withdraw every year the same amount. Only wants a minimum of wages to be incompliance with S-corp regulations.
Their basis would change from 15,000 based on the net profit, contributions, distributions, and liability of the company. It would not stay at 15,000. They cannot take more than their basis.
They pay tax each year on the net income. I know he said no taxes, but that is because the income was already taxed, so distributions based off of that net income are not taxed.
Great information.
Saying that you can pull the remaining $350,000 the following year is misleading because there will not be $350,000 left the following year, as a lot of that $350,000 will be gone because it is used to pay taxes on the $600,000 profit, which will likely be at least $100,000
The only thing that needs clarified. Is a S Corp is not a “entity”. You can’t go form a S Corp. A S Corp is a tax election that an entity can make.
Great video.... one question.... I am a sole person S-Corp..... my tax person did a K1 that I added $24,000 to my personal taxes..... is that where I paid taxes on my profits in the S-Corp or should I be paying another way? Thank you
Hey Robert! Good question. You can schedule a call at www.TaxPlanningCall.com so we can discuss this in more detail.
- Boris
How do we show owners distributions to the IRS??
If. you look on Page 3 of the 1120s you will find line 16C Enter it there and then it will also go on Page 5 at the bottom in the M2 section line 7. If you are using software from there it should automatically flow to the k-1's. Hope that helps.
@@DougBursonCPAThank you!!
I withdrew too much of an owner's distribution. I was not aware 3rd party loans were not classified as owner' s contribution. How can 8 avoid capital gains tax
I also use quickbooks, am I able to enter owner's distribution as a journal entry. Thank you in advance.
thanks
Which state do you practice?
I have a SMLLC taxed as an S-Corp. I use this SMLLC as my holding company for all my IP, trademarks, etc. I wanted to start a new operating LLC taxed as a Partnership to save on Social Security/Medicare taxes. Is it legal (in the eyes of the IRS) to have my SMLLC/S-Corp to be one of the Partners along with me (under my personal name) in this LLC/Partnership? (Example: Partner 1 = SMLLC/S-Corp and Partner 2 = Me). I would be the only "human" in this operating LLC/Partnership. Appreciate your thoughts on this.
How much tax he pay on 600k if he draw entire amount vs choose to keep the entire 600k in business. I think it is almost the same.. can somrone do the math..
So a distribution is not tax deductible and won’t lower net income?
Yes it is
If your paying taxes on the net then your distribution isn't tax free its just money that you've already paid taxes on??
You are correct. I think he was just clarifying that distributions themselves are not taxed. The profits were already taxed so you can take distributions on whatever profit is left as long as distributions do not exceed your basis.
@elizabethbaldwin7307 If you own 100% of the business then you can take any size distribution on the profits, is that correct?
love it
Thank you for the information Boris
My pleasure!
Nice
Hey Boris, are S Corp loans to shareholder for the tax year need to be repaid back within that tax year??
No
@borismusheyevcpa I am filing my 2021 taxes selected as a S corp in which I am 100 percent shareholder. I took out excess distribution. How do i avoid excess distribution capital gains tax.
Thats a bit misleading. The owner would still pay tax on the 250,000 but the company wouldn't
My fellow bukharian
Here is a question. Can an S-corp be a single owner or does it have to have multiple share holders?
An S-Corp can be a single owner
@@thepianist7084 Single owner, 100% ownership
@tiffanyipsen9812 Single owner SCorps also have an amazing tool that no one else has. If you do not have any employees (aside from yourself and a spouse) you can sock a lot more money away for retirement than the government allows for any other person. This is done through a retirement plan called a Solo401k.
My understanding is that the distribution needs to be taxed. How is it legal to not tax the distribution? Please explain.
Check out this video: ruclips.net/video/TwvBjCWeelw/видео.html
The shareholders of an S corp pay income tax on the corporation's earnings, not the amounts which they take out in cash. This is why S corps, like partnerships, are sometimes called "pass through entities." The S corporation doesn't pay tax on its earnings; the shareholders report the corp's income on their personal tax returns, and pay personal income tax on the S corp earnings. This is completely separate from what the shareholders take out of the corporation's bank account as distributions. Sometimes a difficult concept, but that's the whole point of S corporations.
@@richardbryanesq
please edit. You misspoke. There is an indeed an SCorp tax return. It is form 1120S. SCorps file a tax return, generate a K1 for each shareholder, and the shareholders pay the tax. I think you meant to say that SCorps do not pay income tax, their shareholders pay it instead.
Thank you! @@elizabethbaldwin7307
Can you just do my taxes, I’ll pay you😂… my head hurts! Id rather make money & you do my taxes🤷🏻♀️
lol sure @Bachimka1981 you can schedule your call at www.TaxPlanningCall.com
@@borismusheyevcpa Boris, I know my starting basis, I have calculated distributions based on my business account statements, took out business loans from 3rd parties, now are these cash I distributed from my business loans to myself called distributions??
Wow ill be firing my accountant. lol
Tries to be funny but ends up falling flat.. Two breaks in a 13 minute video...
Guy makes video with good information, promotes himself and his business twice...for 10 seconds.
C'mon, this is how he provides for himself and his family.
I don't see anything wrong with spiking his hustle and chasing the American dream!
@@d3fr4g17 ok you're entitled to your own opinion. He didn't impress me..
what is that crap on your head?
Thank you
Thanks!