11–20 of 68 posts
S corps (and AFAIK LLCs) are supposed to have "pass through" taxation. I think it's fair that all income (whether salary or profit distributions) from S Corp is treated as regular W-2 income.
If you don't care about the simplicity that "pass through" offers, register a C-corp.
See, this points out something I've never understood. If you own an s-corp, you have to be careful about paying yourself too little and taking out too much profit, presumably due to the reduction in FICA withholdings. So how does someone like Steve Jobs get away with making a $1 annual salary without being charged with tax evasion? It seems like he's found a way to avoid paying into the social security and workmen's…
A S-corp owner must take what the IRS deems to be a "reasonable salary" based on the overall profit of the company, and must pay self employment taxes (FICA, Medicare, etc.) on that amount. The IRS does not give out much guidance on the definition of "reasonable salary" but has provided guidance on what is /not/ reasonable. In this case the IRS evaluated the company's return and decided that his salary was less that…
This is one of those few instances where I actually support the IRS and also support the law that's being contemplated. S corps (and AFAIK LLCs) are supposed to have "pass through" taxation. I think it's fair that all income (whether salary or profit distributions) from S Corp is treated as regular W-2 income. If you don't care about the simplicity that "pass through" offers, register a C-corp.
In the end, the payroll tax savings are not that great for a small Sub-S. And as you get older, toward retirement, if you pay yourself too low, you take a big hit on SSA benefit payments (which are based on your latest 40 qtrs).
The biggest bang for the PIA effort is if to can write off a vehicle purchase through a Section 179 deduction, and various other hardware purchases.
I hope I don't get slammed for this, but the tax code is a large pile of stinking dung, and good luck trying to do the right thing. S-Corps work under the general premise that it's just like you, if you were a corporation. So if you don't spend all the income in your business in the year, you owe income tax on what remains. If you have plenty of profits, you write yourself a regular W-2 paycheck. At the end of the ye…
The prevailing market wages for beauticians and mechanics are so low that that benefit of evading FICA is marginal. S-Corp owners are rarely audited period, but here you ask us to consider that enforcement of the tax code might focus on them. Of course it doesn't.
Moreover, you've conjured up this issue of income flexibility, the idea that feast-or-famine will cause people to need irregular salaries. But that's not an issue at all. You can pay yourself an irregular salary. Just make sure your quarterly estimated tax payments treat most of it as payroll. The only time this S-Corp rule becomes an issue is when you explicitly invoke it to avoid FICA. Don't do that.
It is not difficult to avoid the problem this article talks about: unless your salary approaches the FICA cap (last year it was just shy of 100k), don't pay yourself a significant fraction of your total income in distros. What makes this a particularly easy rule of thumb to follow is that it's exactly what you would do anyways if you didn't know about the S-Corp loophole.
This is one of those few instances where I actually support the IRS and also support the law that's being contemplated. S corps (and AFAIK LLCs) are supposed to have "pass through" taxation. I think it's fair that all income (whether salary or profit distributions) from S Corp is treated as regular W-2 income. If you don't care about the simplicity that "pass through" offers, register a C-corp.
So then as a small Sub-S owner (wife and me), I would have to pay FICA and Medicare on the money spent on health care insurance, disability insurance, etc., which you as a W-2 employee do not pay payroll taxes on. In the end, the payroll tax savings are not that great for a small Sub-S. And as you get older, toward retirement, if you pay yourself too low, you take a big hit on SSA benefit payments (which are based on…
The fact of the matter is, as a member of the workforce, you owe FICA on your compensation. This isn't a subject of dispute. The IRS says you do, the courts say you do, your accountants will say you do. This issue comes up on HN roughly once a year, and the story has never changed.
I hope I don't get slammed for this, but the tax code is a large pile of stinking dung, and good luck trying to do the right thing. S-Corps work under the general premise that it's just like you, if you were a corporation. So if you don't spend all the income in your business in the year, you owe income tax on what remains. If you have plenty of profits, you write yourself a regular W-2 paycheck. At the end of the ye…
Well in this case it really is an income trick. I have friends who do S-corps for this reason and the main thing they stress over is paying themselves a fair market salary. The guy in the article was paying himself barely 1/2 what a new grad would make so it's clear that he was well below fair market. If he had just paid himself fair market he would still have come out ahead and not had to deal with the IRS.
There is so much "waste motion" expended in trying to game the tax code in so many situations... what could creative people achieve in that time if they didn't spend it that way. We need a vastly simplified income tax code... I'm talking throw it all out and start from scratch. Or replace it with a national sales tax, rebating some amount to make it less regressive.
See, this points out something I've never understood. If you own an s-corp, you have to be careful about paying yourself too little and taking out too much profit, presumably due to the reduction in FICA withholdings. So how does someone like Steve Jobs get away with making a $1 annual salary without being charged with tax evasion? It seems like he's found a way to avoid paying into the social security and workmen's…
There is some confusion there. His $1 salary is exactly that. A token amount paid by Apple for his work. It cannot be $0, otherwise he wouldn't be considered an employee and wouldn't be entitled to bonuses, stock options, insurance, etc. The fact that he is taking a $1 and tying all of his income to options, bonuses, perks means that he firmly believes his impact to the company will be rewarded - and it has, rightful…
See, this points out something I've never understood. If you own an s-corp, you have to be careful about paying yourself too little and taking out too much profit, presumably due to the reduction in FICA withholdings. So how does someone like Steve Jobs get away with making a $1 annual salary without being charged with tax evasion? It seems like he's found a way to avoid paying into the social security and workmen's…
A S-corp owner must take what the IRS deems to be a "reasonable salary" based on the overall profit of the company, and must pay self employment taxes (FICA, Medicare, etc.) on that amount. The IRS does not give out much guidance on the definition of "reasonable salary" but has provided guidance on what is /not/ reasonable. In this case the IRS evaluated the company's return and decided that his salary was less that…
The C corp cost me a little more in terms of the deductions, but was a big win because when I set it up many years ago I put in the bylaws a medical provision such that any full-time employee would have health coverage (up to a limit) including health insurance premiums. This, due to the very high cost of health insurance, was a big win, as these are a business expense.
Were I to do it again, I would probably do LLC with the new way that health care is taken care of.
Thus, there is no issue like there is with the S-corp, because any money taken out of the corporation is done through payroll.