Hello I have a sole proprietor business if I register as s corp today 05/23/2022 how can I file the income tax from January first to 05/23/2022? I file tax as s corp for the entire year or not?
@@omidemami9227 Sole Proprietorships can not file as S - corporations. Single member LLC do exist in certain jurisdictions. LLC can be classified for tax purposes as Sub Chapter S or S Corporations. LLC can also issue member share certificates and operate with custom operating agreements which govern the Single member LLC. Oh and LLC can also register as Corporations with more than 35 member aka share holders. How you title your job and sign your checks is very important for your Limited Liability Companies corporate security. Your operating agreement helps you in case of members divorces, deaths or members legal issues outside the LLC. Filing an LLC that chooses it's tax election as an Scorp or Corp has different paperwork for required for each classification. I hope that helps. Please double check my statements. You should do that anyway, with all statements. Good luck redesigning your business footprint.
This was THE BEST explanation of the “non-double taxation” for an S-Corp! We already started ours “trusting” it did this but YOU explained this so well! great left/right column to support your explanation! Thank you!
I appreciate the video. But your your $200,000 being subject to the full 15.3% is wrong. You need to take into account the social security cap which adjusts every year. For 2019 it’s 12.4% social security tax on $132,900 and 2.9% Medicare tax on the full $200,000 since Medicare never caps out.
Liked, and subscribed! Well done in explaining the tax benefits for S corp! I can understand it a whole lot better. A suggestion for a reasonable amount of compensation is one might want to have Sep IRA contribution in mind, as if you decide to contribute the max 25% of your Medicare wages, or the cap max allowed every year by the IRS, then you might not want to pay yourself too little as you would not be able to take this tax deduction advantage!
Great presentation, I have 30 years of Corp Accg experience. Thanks for mentioning Gusto for payroll since I'm launching an online business. One of the comments below mentioned that $200k wasn't a good example due to the annual wage limit for Social Security. However in general you did a great job.
This kinda makes it sound like the S-corp is better - but, not what she's saying!!! Consider: that SS ENDS just over 100k and you loose the QBI deduction on S-corp wages, plus you ADD hassle and way more steps! Guys - don't do the s-corp because you "think" you're saving taxes!!!!
This is SUPER helpful and informative. We’re moving to S Corp after successfully growing our biz as sole proprietors over the past 7 or so years. It’s daunting and scary- but this video is actually the first little burst of hope on this for me, so THANKS!
good video; very helpful. My CPA told me that I wouldn't need to do payroll for me as I'm starting since I put in ~$15K to start my private practice and I can pull money out to pay ourselves back as I start up. I will look into GUSTO at the beginning of the year.
Thank you so much! The topic was just what I needed .. but the payroll service you mentioned and it’s Benifits we’re, a fantastic addition! Thanks so much✌🏻🇺🇸
I have a full-time job and a side mobile food vending business as a sole proprietor. I should do an llc to save on taxes, so I'm probably paying more as a sole proprietor. I did around $56k in gross sales and with the inventory I used, insurance and other expenses, I made around $32k in profit.
Very helpful. I have had a business for a whole now. It started out as a 50/50 partnership. But we got killed and had to pay estimate quarterly taxes. We changed to an Scorp and definitely much better. Basically in an scorp you get a W2 and a K1 and the business helps you pay the taxes. In a sole proprietor or partnership you have to pay all yourself and any profit is consider income and taxes like it.
I can see how this would be a big red flag if you’re paying yourself below the cap. Once you’re paying the max for Social Security, then the whole thing is revenue neutral to the IRS. Once it’s revenue neutral, it’s no longer a red flag.
Hello so glad I found your videos! Question I justed a S Corp..I figured out what my salary should be. Can I use Gusto to handle all the payroll? Does it handle the taxes and issue out payroll checks? Also, can I use Gusto to issue reimbursement and distributions? Will they handle the taxes on distributions? If I use Gusto do I need to purchase Xero?
Yes to all of the above except no, you don't need to purchase Xero. You should definitely check them out. They make everything easy peasy, and I'm not paid to say that. ;)
Oh wait... not sure about the taxes on distributions... you should check on that. I think you can fix it by increasing your withholding (which I assume they do, but you should confirm). Otherwise, you'd just make quarterly estimated tax payments via the IRS' site (eftps.gov).
The way my CPA explained the reasonable salary to me is that it is supposed to be a comparable salary to what someone in your field would earn. So that is still going to vary widely depending on what it is you do. They also advise to pay yourself a minimum of 25% and that 30% is sufficient in most circumstances. Either way if you make enough that you are considering or already have created an LLC and are filing as an S Corp then you need to just pay a good CPA to file everything for you. It's going to be worth it because you won't be able to screw anything up that way.
Plus a good CPA is going to save you all the hours of research of trying to figure out the constantly changing tax code. My Dad spends hours every year filing his and my Mom's taxes and I just smh.
@@trevorm3181is it just you running the company? Or do you have employees? You’re supposed to pay yourself a salary based on the amount of work you do for your company. If you’re the CEO, you’ll have to check what other CEOs in your line of work are making. It matters whether you have a bunch of employees as well.
But what if you're reinvesting your profits into the business that same year? Say I generate $240k in revenue in a year and $120k is profit before paying myself. I then decide to purchase $100k worth of goods. Then I only have $20k to pay myself. At that point am I allowed to pay myself as an employee $10k/year salary and $10k distributions as an investor? Is this by the books? Like obviously you can't pay someone $10K/year to run a business, but that's all the money I have to pay myself if I wan't to scale the biz with my own funds.
I know... it's super-frustrating and challenging as a bootstrapping business owner. This is also why people say that "cash is king." If you put the purchases on terms and are able to turnover the inventory by the time the bill comes due, the cash is free again for salary. But it's tricky and can cause a lot of stress.
There is a difference between legal and tax entity types. S Corp is tax, and Limited Liability Company (LLC) is legal. Your company name should follow the legal designation... so LLC. Having said that, it's always best to reach out to your attorney with any legal questions. :)
So what is an effective strategy when a Solo 401K is introduced. Maximizing that deduction involves paying yourself a higher wage so that the employer's 25% max contribution is as much as it can be.
Whoa. I stopped at "what is an effective strategy." Way over my pay grade. Please remember that giant flaming disclaimer that you should consult your own tax CPA. Maybe actual tax professionals can jump in here with advice for you.... :)
@Catching Clouds Academy What do you do if you own a successful company, you have one employee that does the work, and yourself also an employee making the $20k you mentioned, all you do as owner is show up to work and watch TV all day, and accomplish less than an hour of work per day (and I am being literal) but your company results in very high profits? If an owner just arrives to work and does nothing (using 1 hour of work as a baseline, but it's actually less) what is the value of that? Would that be able to be explained to IRS if need be? Should you overpay for your (lack of) services?
The best rule of thumb that I know of is... the S Corp owner should be paid what they would pay someone else to do their job. As long as you can reasonably justify how you came up with that salary, you should be fine with the IRS. Just know that a super low salary will get the attention of the IRS, but that may not mean you won't come out perfectly clean in an audit.
Quick question for you, at 3:16 you show a slide where as the investor you only pay Fed. Inc. tax and state inc. tax on the remaining $100k net income, “no self employment tax and no FICA”... My question is, does the remaining 7.65% of the employee’s FICA (company’s share) come from the investors $100k net income? If not, could you please explain? Thank you kindly!
this is actually not correct, your 200k self employment tax as a sole prop is not 30k, as there are income limits (around 140k I believe), the self employment tax would only be about 24k...I think you should clarify this to your viewers.
First of Ms. Scharf you're super pretty. For education purposes, does this statement makes sense at all? "technically, you don't have to take a salary out of an S-Corp IF you take no distributions. But if you take money out of an S-Corp, you got to pay yourself a reasonable salary".
What they're implying is that a business owner doesn't have to take a salary if the business is losing money. But if it's making money and they're taking out profits, they need to pay themselves a reasonable salary. So yes, it makes sense. Whether it's true or not I'll leave to the tax professionals. ;) And thank you for the compliment.
hi, if your company is fairly new and only grossing $50k in revenue would it be unreasonable to pay myself $19k or would they expect me to pay myself the average pay for the position and operate at a loss? thanks for your help
Good question for your tax advisor, but it's my understanding that reasonableness can depend on circumstances and span a couple of years (i.e., you might decide to pay yourself less this year but make up for it in a subsequent year). But again, reach out to your tax advisor for a better answer that applies to your specific situation.
The answer is the same as what I outlined in the video regardless of the amount you made. But you should align yourself with a good tax CPA for guidance that is more custom to your personal situation.
@@AcuityEcommerce so is actually a benefit been on payroll as a S.Corp? Bank of America wants to put me on payroll but I think is better to work with a credit union like Suncoast
Q, trying to figure out the whole s Corp thing. Can I buy and sell stocks and not pay taxes on capital gains if I reinvest it in other stocks, and only pay for what I earn as a reasonable distribution. Also if I plan on getting loans for the positions I hold to take on debt and grow a tech company, can my stock market investing and the tech company be rolled into one s Corp, but separate LLC'$.. just getting things ready. Thank you.... You're the best 🦸😁...
Hi. Interesting. If my side business generates 75,000 a year but I’m only working on that business maybe 30 minutes a day. I’m not going to pay myself that much. It would be very little but then the IRS might red flag me. Not sure how much I would pay me then? Thanks
LLC is a legal designation, and S Corp is a tax designation. You can have a company that is formed as an LLC but is taxed as an S Corp. In my opinion, you shouldn't make any tax decisions based off a RUclips video... you should chat with your tax professional and see what they advise. I hope this helps!
The distributions themselves are not taxed... or at least, not in the way most people are used to thinking about it. You pay tax on the net income from the business in the year you earn it REGARDLESS of whether you take the money out as a distribution or leave it in the bank account to be taken out at a future date. Because of that, you don't (AGAIN) pay taxes when you pull money out of the business bank account because that would be double taxation on the same money.
@@AcuityEcommerce If I have a Corporation, but I have paid myself with bank transfers, not with W2, I would like to know where I have to put my salary if it went from one account to another?
How do you pay yourself if the company had total losses because of covid-19 shut down should you just skip that year? What additional forms do you.file as a single member llc with scorp designation for taxes. I am the music producer composer arranger writer of the songs and managing member of the llc. I also take care of all the social media placements posting and assign all istc codes as the owner and artist of an independent record label. The irs is currently trying to audit me and I provided all bank statements and receipts. The audit has flat out refused to accept any of my documentation. Help
Hi, Thank you for a very informative video. One question. I have an s-corp. I am the sole owner of my s-corp. My s-corp has been paying unemployment insurance to both NYS and Federal. However, my business has no work for almost two months already. Therefore, I need to file for unemployment benefits as an employee. May I know what is the instruction for me to file for unemployment benefits? THANK YOU.
I'd like to help, but I have no idea about the administrative logistics of filing for unemployment in NY. If I were you, I'd do a Google search for the government office responsible for that.
Good catch! I was trying to make this as simple as possible. :) Self-employment of 15.3% is split between Social Security (12.4%) and Medicare (2.9%), and you're right that Social Security caps out after a certain amount, so you're only subjected to 2.9% on the excess. The same is true for employees and employers paying payroll taxes ("FICA") on wages. The Social Security ceiling was $160,200 in 2023 and went up to $168,600 in 2024.
Officially: you should discuss this with your tax CPA. Unofficially: you pay taxes on your business income regardless of the amount of distributions you take. BUT... if you have a loss and haven't put in money to cover the shortfall and are *still* taking out distributions? If that's happening, you're taking what's called "distributions in excess of basis," and that's taxable income to you. Again, go talk to your tax CPA for details.
I agree with catching clouds. If it's rental income you do not want to put that in an S Corp because it is already considered passive income which is not subject to se tax. By putting it in an S Corp you would then have to pay se tax on the salary you take.
Hi, thanks for the video but bare with me for a question on this example: If my S Corp makes 180K a year, I take out expenses 40K a year and pay myself 65k. the S Corp profit is 75K. I understand that I have to pay on top of normal Federal and State taxes a Fica tax. My question is are there any more taxes for my pay me as an employee like SS and Medicaid? Also, what are there the S Corp taxes on the 75K? Thank you for your answer ( I am in Texas resident if that makes any difference)
This is a perfect question for your tax advisor. :) I haven't done taxes in years and have never done taxes in Texas... which I think has a franchise tax instead of income tax, but... again... I'm super hazy and will leave it to you to discuss with a tax professional. ;) With that sweeping disclaimer.... Payroll - here are the typical payroll taxes (on $65,000 in your example): - FICA is Social Security + Medicare. This is paid half by employer & half by employee. If you ARE the employer (i.e., an S Corp), you get to pay both halves, but you get a business deduction for the employer's portion. - FUTA is federal unemployment tax. The employer pays this (and it's a deductible business expense). It's 6% on the first $7,000 of an employee's wages (so $420 per year). - SUTA (aka SUI) is state unemployment tax. The employer pays this (and it's a deductible business expense). The amount you pay varies both by state and by company. In Colorado, you get an "experience" rating... so if you have a boatload of ex-employees who file for unemployment, you'll pay a higher rate than someone else with low turnover. Do a Google search in your state and/or reach out to the state department of labor to get specifics. - Local taxes - some jurisdictions have local taxes like a "head tax" or an "OPT" (occupational privilege tax). Sometimes the employer pays these, and sometimes they're shared. Usually the amounts are minor (like $10/month). - Federal income tax - the employee pays this. You pay out a bit at a time with every paycheck, and you do a reconciliation at year-end to determine how much you actually owe (i.e., on April 15th when you file your personal tax return). - State income tax - the employee pays this. You pay out a bit at a time with every paycheck, and you do a reconciliation at year-end to determine how much you actually owe (i.e., on April 15th when you file your personal tax returns). Business income - here are the typical business taxes (on $75,000 in your example): - Federal income tax - the BUSINESS OWNER pays this as part of their PERSONAL federal income tax return. You should make estimated quarterly tax payments on this income so you don't get hit with a giant bill at the end of the year (when you do a reconciliation at year-end to determine how much you actually owe (i.e., on April 15th when you file your personal tax return)). - State income tax - the BUSINESS OWNER pays this as part of their PERSONAL state income tax return. You should make estimated quarterly tax payments on this income so you don't get hit with a giant bill at the end of the year (when you do a reconciliation at year-end to determine how much you actually owe (i.e., on April 15th when you file your personal tax return)). [NOTE: In Texas, you might be working with a business franchise tax return instead of a personal state income tax return. Again, run that by someone who knows about taxes in your state.] I'm sure there will be a tax professional who will come out of the woodwork to let me know some obvious thing that I've forgotten. ;), but these are the basics and should get you started.
What if your company industry standard for your level is over $50k, but you can only afford to pay yourself under half of $50k, and not even pay yourself a dividend as an owner? Then what? Are you FUBAR? Over 85 percent of your s corps incoming revenue is spent paying contractors?
Clearly, this woman does not take 2 showers a day, never uses mascara or nasty make up that stains men's Canalis. The whole chat and video w/o crappy music is super refreshing!
Gusto makes too many mistakes. They are not good at doing an amendment. Works great for service Industry, but for robust multi level employee they have messed up sooooooo many things for my clients.
Please feel free to add any comments, tips, and suggestions that you think might help the viewers of this video. Assuming you're a tax professional, I'm sure they would appreciate any help you can give.
Thanks for watching! Do you have any other tips for S Corp owners? Please share below!
Hello I have a sole proprietor business if I register as s corp today 05/23/2022 how can I file the income tax from January first to 05/23/2022? I file tax as s corp for the entire year or not?
@@omidemami9227
Sole Proprietorships can not file as S - corporations. Single member LLC do exist in certain jurisdictions. LLC can be classified for tax purposes as Sub Chapter S or S Corporations. LLC can also issue member share certificates and operate with custom operating agreements which govern the Single member LLC. Oh and LLC can also register as Corporations with more than 35 member aka share holders. How you title your job and sign your checks is very important for your Limited Liability Companies corporate security. Your operating agreement helps you in case of members divorces, deaths or members legal issues outside the LLC. Filing an LLC that chooses it's tax election as an Scorp or Corp has different paperwork for required for each classification. I hope that helps. Please double check my statements. You should do that anyway, with all statements. Good luck redesigning your business footprint.
you can pay your Self in in S-corp and instead pay self in tax
This was THE BEST explanation of the “non-double taxation” for an S-Corp! We already started ours “trusting” it did this but YOU explained this so well! great left/right column to support your explanation! Thank you!
Glad it was helpful!
I watched 2 other videos on this and they just ramble on and on, making things confusing. Your video was concise, clear and to the point. Thank you.
Glad you liked it and it helped!
Like the explanation pretty much like a casual chat rather than too professional...very good!
I appreciate that!
Very simple and easy to understand explanation of the reason to elect for S corp. You removed the confusion. Thank you very much.
Glad it was helpful!
I appreciate the video. But your your $200,000 being subject to the full 15.3% is wrong. You need to take into account the social security cap which adjusts every year. For 2019 it’s 12.4% social security tax on $132,900 and 2.9% Medicare tax on the full $200,000 since Medicare never caps out.
You're totally right! I was going for a simple explanation and forgot about those details. Thanks for setting me straight.
The most clearest explanation I've seen!
Thank you!
Valuable info without any fee , we apperciate for sharing your knowlegde
You're very welcome. :)
Best explanation I’ve seen on how s corps are taxed!
Thank you!
Liked, and subscribed! Well done in explaining the tax benefits for S corp! I can understand it a whole lot better. A suggestion for a reasonable amount of compensation is one might want to have Sep IRA contribution in mind, as if you decide to contribute the max 25% of your Medicare wages, or the cap max allowed every year by the IRS, then you might not want to pay yourself too little as you would not be able to take this tax deduction advantage!
Great suggestion!
Great explanation! The only thing I would harp on is the "reasonable compensation" cop-out.
Thanks for watching!
Great presentation, I have 30 years of Corp Accg experience. Thanks for mentioning Gusto for payroll since I'm launching an online business. One of the comments below mentioned that $200k wasn't a good example due to the annual wage limit for Social Security. However in general you did a great job.
Thank you!
This kinda makes it sound like the S-corp is better - but, not what she's saying!!! Consider: that SS ENDS just over 100k and you loose the QBI deduction on S-corp wages, plus you ADD hassle and way more steps! Guys - don't do the s-corp because you "think" you're saving taxes!!!!
I'll add... TALK TO YOUR OWN PERSONAL TAX ADVISOR! ;)
This is SUPER helpful and informative. We’re moving to S Corp after successfully growing our biz as sole proprietors over the past 7 or so years. It’s daunting and scary- but this video is actually the first little burst of hope on this for me, so THANKS!
I'm so happy I could help! :)
good video; very helpful. My CPA told me that I wouldn't need to do payroll for me as I'm starting since I put in ~$15K to start my private practice and I can pull money out to pay ourselves back as I start up. I will look into GUSTO at the beginning of the year.
Glad it was helpful!
Thank you so much! The topic was just what I needed .. but the payroll service you mentioned and it’s Benifits we’re, a fantastic addition! Thanks so much✌🏻🇺🇸
Glad it was helpful!
I have a full-time job and a side mobile food vending business as a sole proprietor. I should do an llc to save on taxes, so I'm probably paying more as a sole proprietor. I did around $56k in gross sales and with the inventory I used, insurance and other expenses, I made around $32k in profit.
Thanks for sharing. As always when it comes to tax questions, I recommend you reach out to a tax professional for advice. :)
Very helpful. I have had a business for a whole now. It started out as a 50/50 partnership. But we got killed and had to pay estimate quarterly taxes. We changed to an Scorp and definitely much better. Basically in an scorp you get a W2 and a K1 and the business helps you pay the taxes.
In a sole proprietor or partnership you have to pay all yourself and any profit is consider income and taxes like it.
I'm glad you found this helpful. :)
Than you so much for making this very simple and straight forward
You're very welcome!
I can see how this would be a big red flag if you’re paying yourself below the cap. Once you’re paying the max for Social Security, then the whole thing is revenue neutral to the IRS. Once it’s revenue neutral, it’s no longer a red flag.
Agreed.
Awesome, I learn from watching these videos.
Glad to hear it!
Excellent video
Thank you very much!
Hello so glad I found your videos! Question I justed a S Corp..I figured out what my salary should be. Can I use Gusto to handle all the payroll? Does it handle the taxes and issue out payroll checks? Also, can I use Gusto to issue reimbursement and distributions? Will they handle the taxes on distributions? If I use Gusto do I need to purchase Xero?
Yes to all of the above except no, you don't need to purchase Xero. You should definitely check them out. They make everything easy peasy, and I'm not paid to say that. ;)
Oh wait... not sure about the taxes on distributions... you should check on that. I think you can fix it by increasing your withholding (which I assume they do, but you should confirm). Otherwise, you'd just make quarterly estimated tax payments via the IRS' site (eftps.gov).
The way my CPA explained the reasonable salary to me is that it is supposed to be a comparable salary to what someone in your field would earn. So that is still going to vary widely depending on what it is you do. They also advise to pay yourself a minimum of 25% and that 30% is sufficient in most circumstances. Either way if you make enough that you are considering or already have created an LLC and are filing as an S Corp then you need to just pay a good CPA to file everything for you. It's going to be worth it because you won't be able to screw anything up that way.
Plus a good CPA is going to save you all the hours of research of trying to figure out the constantly changing tax code. My Dad spends hours every year filing his and my Mom's taxes and I just smh.
Yeah. I may be biased, but a think a good CPA is worth his/her weight in gold. (I pay someone to do my taxes. ;))
Minimum 25%? If my company makes $800k/yr, I shouldn’t have to pay myself a $200k+ salary. I don’t think 25% makes sense in high-income cases.
@@trevorm3181is it just you running the company? Or do you have employees? You’re supposed to pay yourself a salary based on the amount of work you do for your company. If you’re the CEO, you’ll have to check what other CEOs in your line of work are making. It matters whether you have a bunch of employees as well.
But what if you're reinvesting your profits into the business that same year? Say I generate $240k in revenue in a year and $120k is profit before paying myself. I then decide to purchase $100k worth of goods. Then I only have $20k to pay myself. At that point am I allowed to pay myself as an employee $10k/year salary and $10k distributions as an investor? Is this by the books? Like obviously you can't pay someone $10K/year to run a business, but that's all the money I have to pay myself if I wan't to scale the biz with my own funds.
I know... it's super-frustrating and challenging as a bootstrapping business owner.
This is also why people say that "cash is king." If you put the purchases on terms and are able to turnover the inventory by the time the bill comes due, the cash is free again for salary. But it's tricky and can cause a lot of stress.
We use Gusto too
They make things so easy!
This video was awesome
Thanks! I hope it helped!
Excellent Video!!!!
Glad you liked it!
Hi, Thanks for the informative video. I have elected s corp for my llc using form 2553. Is there a way I can s corp election is successful?
Please reach out to your tax advisor for more tax specifics. :)
I am creating an LLC on Jan 1 2023 to be elected as S-Corp. In the LLC creation form of company name, should I use LLC or INC? Thanks!!:)
There is a difference between legal and tax entity types. S Corp is tax, and Limited Liability Company (LLC) is legal. Your company name should follow the legal designation... so LLC.
Having said that, it's always best to reach out to your attorney with any legal questions. :)
This was so so helpful thank you!
You're so welcome!
Hey, so if someone were making $2M per year as an SP, would there be a big advantage to moving to an S-CORP?
A great question for your tax advisor. :)
So what is an effective strategy when a Solo 401K is introduced. Maximizing that deduction involves paying yourself a higher wage so that the employer's 25% max contribution is as much as it can be.
Whoa. I stopped at "what is an effective strategy." Way over my pay grade. Please remember that giant flaming disclaimer that you should consult your own tax CPA.
Maybe actual tax professionals can jump in here with advice for you.... :)
@Catching Clouds Academy What do you do if you own a successful company, you have one employee that does the work, and yourself also an employee making the $20k you mentioned, all you do as owner is show up to work and watch TV all day, and accomplish less than an hour of work per day (and I am being literal) but your company results in very high profits? If an owner just arrives to work and does nothing (using 1 hour of work as a baseline, but it's actually less) what is the value of that? Would that be able to be explained to IRS if need be? Should you overpay for your (lack of) services?
The best rule of thumb that I know of is... the S Corp owner should be paid what they would pay someone else to do their job. As long as you can reasonably justify how you came up with that salary, you should be fine with the IRS.
Just know that a super low salary will get the attention of the IRS, but that may not mean you won't come out perfectly clean in an audit.
@@AcuityEcommerce Very appreciated, thank you!
this was super helpful!
I'm so glad!
Quick question for you, at 3:16 you show a slide where as the investor you only pay Fed. Inc. tax and state inc. tax on the remaining $100k net income, “no self employment tax and no FICA”... My question is, does the remaining 7.65% of the employee’s FICA (company’s share) come from the investors $100k net income? If not, could you please explain? Thank you kindly!
If I'm understanding your question correctly, yes. The company's share becomes a business deduction.
Because of covid-19 I have had to use one account and need to go all the way back to Texas from Hawaii.
this is actually not correct, your 200k self employment tax as a sole prop is not 30k, as there are income limits (around 140k I believe), the self employment tax would only be about 24k...I think you should clarify this to your viewers.
Thank you... you just did. :)
(And I believe others have commented on this same thing, so hopefully people are reading the comments.)
First of Ms. Scharf you're super pretty. For education purposes, does this statement makes sense at all? "technically, you don't have to take a salary out of an S-Corp IF you take no distributions. But if you take money out of an S-Corp, you got to pay yourself a reasonable salary".
What they're implying is that a business owner doesn't have to take a salary if the business is losing money. But if it's making money and they're taking out profits, they need to pay themselves a reasonable salary. So yes, it makes sense. Whether it's true or not I'll leave to the tax professionals. ;) And thank you for the compliment.
hi, if your company is fairly new and only grossing $50k in revenue would it be unreasonable to pay myself $19k or would they expect me to pay myself the average pay for the position and operate at a loss? thanks for your help
This is a great question for your tax professional. :)
What if you're just starting off and you literally can't pay yourself enough for it to be "reasonable"?
Good question for your tax advisor, but it's my understanding that reasonableness can depend on circumstances and span a couple of years (i.e., you might decide to pay yourself less this year but make up for it in a subsequent year). But again, reach out to your tax advisor for a better answer that applies to your specific situation.
What if I only made 24,000 a year? What do I pay myself as an employee?
The answer is the same as what I outlined in the video regardless of the amount you made. But you should align yourself with a good tax CPA for guidance that is more custom to your personal situation.
Become passive as investor and pay yourself in distributions - very little to no tax
True. But most people have to work up to that. :)
But your are losing on social security benefits and ability to secure a loan or a mortgage. Because these are tied to the salary level.
@@mosesnikko16 Yes, social security and mortgages are the traps socialists use to rape America, thanks for playing!
This doesn’t include reimbursement correct? Can I reimburse myself for fringe benefits since I can’t write them off like I could on a C-corp?
Great question for your tax advisor. :)
Omg this is soooooooooooo helpful!!!! Thank you so much!!! Stay well and healthy!
I'm so glad you found it helpful!
Great Job! Thank You!!! ❤️🎯💪
You're so welcome!
Can the S. Corp write off the W-2 income of the single employee ?
Yes, payroll expenses (i.e., wages and payroll taxes) are typically deductible by all businesses. (But check with your tax advisor on your specifics.)
@@AcuityEcommerce so is actually a benefit been on payroll as a S.Corp?
Bank of America wants to put me on payroll but I think is better to work with a credit union like Suncoast
Q, trying to figure out the whole s Corp thing. Can I buy and sell stocks and not pay taxes on capital gains if I reinvest it in other stocks, and only pay for what I earn as a reasonable distribution. Also if I plan on getting loans for the positions I hold to take on debt and grow a tech company, can my stock market investing and the tech company be rolled into one s Corp, but separate LLC'$.. just getting things ready. Thank you.... You're the best 🦸😁...
That sounds like a fabulous question for your tax advisor. :)
The auditor even asked me for spreadsheets and she asked me to buy additional software to complete her audit request. Help.
I reinvested everything other than feeding myself and a never clothing allowance.
If your business doesn’t make enough you don’t need to pay yourself. Normally it’s a 70/30 rule. 30% payroll W2. 70% distributions.
Thanks for sharing.
Thank you!
You're welcome!
Hi. Interesting. If my side business generates 75,000 a year but I’m only working on that business maybe 30 minutes a day. I’m not going to pay myself that much. It would be very little but then the IRS might red flag me. Not sure how much I would pay me then? Thanks
How much would you pay someone else to do the work you do? That's the answer.
So if I want to do a small LLC to dispatch for truckers independently is that already not s Corp should. I stop the LLC and go to s Corp?
LLC is a legal designation, and S Corp is a tax designation. You can have a company that is formed as an LLC but is taxed as an S Corp.
In my opinion, you shouldn't make any tax decisions based off a RUclips video... you should chat with your tax professional and see what they advise. I hope this helps!
but as an employee you do need to get workers comp correct?
Yes, correct. Some states allow you to waive coverage. You need to check with your local rules and regulations.
More importantly, what do you so if your self-employed SCorp client refuses to do payroll?
Question whether the professional services you offer are being valued or if the client might be better served by someone else. ;)
so how are distributions to yourself as an employee taxed?
The distributions themselves are not taxed... or at least, not in the way most people are used to thinking about it.
You pay tax on the net income from the business in the year you earn it REGARDLESS of whether you take the money out as a distribution or leave it in the bank account to be taken out at a future date. Because of that, you don't (AGAIN) pay taxes when you pull money out of the business bank account because that would be double taxation on the same money.
@@AcuityEcommerce If I have a Corporation, but I have paid myself with bank transfers, not with W2, I would like to know where I have to put my salary if it went from one account to another?
How do you pay yourself if the company had total losses because of covid-19 shut down should you just skip that year? What additional forms do you.file as a single member llc with scorp designation for taxes. I am the music producer composer arranger writer of the songs and managing member of the llc. I also take care of all the social media placements posting and assign all istc codes as the owner and artist of an independent record label. The irs is currently trying to audit me and I provided all bank statements and receipts. The audit has flat out refused to accept any of my documentation. Help
I highly recommend you hire a tax professional to help you out with your questions and assist you in coordinating with the IRS.
I had purchased Audit defense from TurboTax and they haven't done anything but play phone tag with me.
Hi, Thank you for a very informative video. One question. I have an s-corp. I am the sole owner of my s-corp. My s-corp has been paying unemployment insurance to both NYS and Federal. However, my business has no work for almost two months already. Therefore, I need to file for unemployment benefits as an employee. May I know what is the instruction for me to file for unemployment benefits? THANK YOU.
I'd like to help, but I have no idea about the administrative logistics of filing for unemployment in NY. If I were you, I'd do a Google search for the government office responsible for that.
Seems like your Corp would pay half and state the other half
Isn’t self employment tax 3% after 160k?
Good catch! I was trying to make this as simple as possible. :)
Self-employment of 15.3% is split between Social Security (12.4%) and Medicare (2.9%), and you're right that Social Security caps out after a certain amount, so you're only subjected to 2.9% on the excess.
The same is true for employees and employers paying payroll taxes ("FICA") on wages.
The Social Security ceiling was $160,200 in 2023 and went up to $168,600 in 2024.
Hi there! For an S-Corp. In an owner doesn't make contributions and takes distributions. How does that all work?
I guess I don't understand the consequences of having negative capital at the end of the year.
Officially: you should discuss this with your tax CPA.
Unofficially: you pay taxes on your business income regardless of the amount of distributions you take. BUT... if you have a loss and haven't put in money to cover the shortfall and are *still* taking out distributions? If that's happening, you're taking what's called "distributions in excess of basis," and that's taxable income to you. Again, go talk to your tax CPA for details.
Thanks! Starting up S-Corp with some friends from my real estate form so we can limit our taxes
Be careful with real estate in an S Corp! Go talk to your tax advisor. They will probably recommend a different structure.
I agree with catching clouds. If it's rental income you do not want to put that in an S Corp because it is already considered passive income which is not subject to se tax. By putting it in an S Corp you would then have to pay se tax on the salary you take.
This is the first time I attempted to take a salary in six years.
IRS should stroll on by my place we'll see who loses lmfao.
LOL.
Hi, thanks for the video but bare with me for a question on this example: If my S Corp makes 180K a year, I take out expenses 40K a year and pay myself 65k. the S Corp profit is 75K. I understand that I have to pay on top of normal Federal and State taxes a Fica tax.
My question is are there any more taxes for my pay me as an employee like SS and Medicaid? Also, what are there the S Corp taxes on the 75K? Thank you for your answer
( I am in Texas resident if that makes any difference)
This is a perfect question for your tax advisor. :)
I haven't done taxes in years and have never done taxes in Texas... which I think has a franchise tax instead of income tax, but... again... I'm super hazy and will leave it to you to discuss with a tax professional. ;) With that sweeping disclaimer....
Payroll - here are the typical payroll taxes (on $65,000 in your example):
- FICA is Social Security + Medicare. This is paid half by employer & half by employee. If you ARE the employer (i.e., an S Corp), you get to pay both halves, but you get a business deduction for the employer's portion.
- FUTA is federal unemployment tax. The employer pays this (and it's a deductible business expense). It's 6% on the first $7,000 of an employee's wages (so $420 per year).
- SUTA (aka SUI) is state unemployment tax. The employer pays this (and it's a deductible business expense). The amount you pay varies both by state and by company. In Colorado, you get an "experience" rating... so if you have a boatload of ex-employees who file for unemployment, you'll pay a higher rate than someone else with low turnover. Do a Google search in your state and/or reach out to the state department of labor to get specifics.
- Local taxes - some jurisdictions have local taxes like a "head tax" or an "OPT" (occupational privilege tax). Sometimes the employer pays these, and sometimes they're shared. Usually the amounts are minor (like $10/month).
- Federal income tax - the employee pays this. You pay out a bit at a time with every paycheck, and you do a reconciliation at year-end to determine how much you actually owe (i.e., on April 15th when you file your personal tax return).
- State income tax - the employee pays this. You pay out a bit at a time with every paycheck, and you do a reconciliation at year-end to determine how much you actually owe (i.e., on April 15th when you file your personal tax returns).
Business income - here are the typical business taxes (on $75,000 in your example):
- Federal income tax - the BUSINESS OWNER pays this as part of their PERSONAL federal income tax return. You should make estimated quarterly tax payments on this income so you don't get hit with a giant bill at the end of the year (when you do a reconciliation at year-end to determine how much you actually owe (i.e., on April 15th when you file your personal tax return)).
- State income tax - the BUSINESS OWNER pays this as part of their PERSONAL state income tax return. You should make estimated quarterly tax payments on this income so you don't get hit with a giant bill at the end of the year (when you do a reconciliation at year-end to determine how much you actually owe (i.e., on April 15th when you file your personal tax return)).
[NOTE: In Texas, you might be working with a business franchise tax return instead of a personal state income tax return. Again, run that by someone who knows about taxes in your state.]
I'm sure there will be a tax professional who will come out of the woodwork to let me know some obvious thing that I've forgotten. ;), but these are the basics and should get you started.
@@AcuityEcommerce Thank You , very clear.
What if your company industry standard for your level is over $50k, but you can only afford to pay yourself under half of $50k, and not even pay yourself a dividend as an owner? Then what? Are you FUBAR? Over 85 percent of your s corps incoming revenue is spent paying contractors?
Great discussion point for your tax advisor. :)
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Clearly, this woman does not take 2 showers a day, never uses mascara or nasty make up that stains men's Canalis. The whole chat and video w/o crappy music is super refreshing!
Gusto makes too many mistakes. They are not good at doing an amendment. Works great for service Industry, but for robust multi level employee they have messed up sooooooo many things for my clients.
I've had a few hiccups on the benefits side, but we've had no other problems like you have.
Answer: How much would you pay someone to do your job.
Yep.
I could poke 100 holes in these 'facts' with a stick. Rules also vary by state and no mention of that. What state is she talking about?
Please feel free to add any comments, tips, and suggestions that you think might help the viewers of this video. Assuming you're a tax professional, I'm sure they would appreciate any help you can give.
Thank you!
You're welcome!