Arghh...just sent in another nice big check to IRS today! I hate the IRS 
there are downsides to making too much money
- Thread starter NsXMas
- Start date
O-Ace said:Arghh...just sent in another nice big check to IRS today! I hate the IRS
I think you need to ask yourself, would you rather:
a) make 65,000 a year and write a check for $300.
or
b) make 250,000 a year and write a check for $75,000.
I think I know what I would choose. And I would probably be pissed about paying that much tax, but what the hell.. I would be living like a king on 175K after tax.
Regardless of how much you make, I think it will always hurt giving away a big chunk to the IRS.
-awais
-awais
NetViper...clear out your PM box 
Work a well paying job and pay your taxes, but make all your real cash on the side 
O-Ace said:NetViper...clear out your PM box
cleared
Ahh yes, it's over for another year...
For what I paid in taxes in the last few years, I could have had a few NSX's in my garage...
For what I paid in taxes in the last few years, I could have had a few NSX's in my garage...
We still have another month before THAT DAY......but then
...i just heard the rumour that kerry's taxes were disclosed and he made 400k plus but paid 90k in taxes. His rich wife's financials were not disclosed. 
nsxtasy said:
From my perspective as a relatively small business owner, the employer contribution to the payroll tax is not considered part of the employee’s wages; it is an expense, 7.65% of gross wages. A significant majority of workers have no idea that the employer equally contributes to their Social Security and Medicare taxes.
For an owner to transfer money to themselves out of the corporation through payroll requires an immediate 15.3% payroll tax plus state, local and fed, we usually estimate 50% total. All owners who work in their business are required to pay themselves a reasonable amount of payroll. But it is financial suicide to pay more payroll tax than reasonably allowed.
To get around the payroll tax, a business can be structured in a way to allow profits to be transferred freely and the total corporation profits be taxed as regular income. This is how our Vice-President wanna-be John Edwards and most other small business owners legally structure their businesses.
Some people view this as a “scheme” or some way for the “rich” to evade paying taxes but these people have never had to write a non-government payroll check in their life, but I digress.
So I agree with the above article that if the employer contribution is added, the typical worker does pay a proportionally higher amount of payroll tax. It would be nice if employers showed their contribution as additional 7% gross income and then an additional 7% payroll tax on their employee pay stubs; then they would KNOW that they pay it.
DanO
Can you elaborate a little on this? How can I setup my companies so profits can be transferred freely without paying payroll tax? Currently, my companies are set up as S-Corps, but I still have to pay payroll tax since I pay myself a salary.DanO said:
Thanks.
-Awais
DanO said:
Yes, please elaborate if you have a minute.
First, I’m not a CPA. Second, I pay a CPA firm to help structure my business and comply fully with tax law. Take the info below for what it’s worth.
S-Corp
The S-Corp structure allows stockholders to be paid a “dividend” or “shareholder distribution” from the corporation. These distributions (not to be confused with C-Corp. dividends) are not considered “income” to the shareholder. And these distributions are not an expense to the corporation and therefore do not reduce company profit. Rather, S-Corp profit shows up on the stockholder’s tax return as Schedule K income—which is not subject to the 15% payroll tax, but is subject to fed, state and local tax. These dividends also remain on the companies books as “retained earnings” which increase the basis of the corporation, which may or may not be a big deal depending on whether you plan on selling the company.
Example: S-Corp (I think LLC’s operate in the same manner and are a little easier to set up and maintain)
Company nsXmods is an S-Corp with one employee and one shareholder; they are the same person.
Company nsXmods sells $100,00 worth of stuff
Company nsXmods pays $30,000 in payroll (to shareholder as an employee)
Company nsXmods pays $50,000 for goods
Company nsXmods pays $10,000 in other taxes and other expenses
Company nsXmods makes $10,000 in profit at the end of the year
At the end of the year, the shareholder can pay himself/herself around $10,000 (actually $9,300) in payroll, which is an expense and will eliminate the profit in the company. The company will also pay 7.5% (~$700) payroll tax on the $9,300 (an expense) and the individual will also pay the ~$700 payroll tax. The $9,300 will show up as regular W-2 income, which is subject to federal, state and local tax, but payroll tax is written off against income. So, out of the original $10,000 in profit, the shareholder receives $8,600 of regular taxable income. The shareholder will report $0 in Schedule K income.
-OR-
The shareholder of company nsXmods reports the $10,000 profit as Schedule K income and pay taxes on this income.
The shareholder of company nsXmods is free to write a check from nsXmods to himself/herself as a shareholder distribution. A shareholder can make a distribution in any amount at any time. In this case the shareholder will pay himself/herself a $10,000 distribution. The $10,000 Schedule K profit (not the distribution) is taxable as income and is not subject to payroll taxes.
Schedule K income is not subject to backup withholding so estimated federal and state pre-payments must be made quarterly to avoid paying a penalty. If significant, these quarterly payments can bear on cash flow enough to require great skill in cash flow management or an incredibly profitable year-round business. These pre-payments act to mitigate the payroll tax advantage as you are giving the government an interest-free loan.
--
Like I said above, I am not a CPA so take the above as such.
.02 (before tax)
DanO
S-Corp
The S-Corp structure allows stockholders to be paid a “dividend” or “shareholder distribution” from the corporation. These distributions (not to be confused with C-Corp. dividends) are not considered “income” to the shareholder. And these distributions are not an expense to the corporation and therefore do not reduce company profit. Rather, S-Corp profit shows up on the stockholder’s tax return as Schedule K income—which is not subject to the 15% payroll tax, but is subject to fed, state and local tax. These dividends also remain on the companies books as “retained earnings” which increase the basis of the corporation, which may or may not be a big deal depending on whether you plan on selling the company.
Example: S-Corp (I think LLC’s operate in the same manner and are a little easier to set up and maintain)
Company nsXmods is an S-Corp with one employee and one shareholder; they are the same person.
Company nsXmods sells $100,00 worth of stuff
Company nsXmods pays $30,000 in payroll (to shareholder as an employee)
Company nsXmods pays $50,000 for goods
Company nsXmods pays $10,000 in other taxes and other expenses
Company nsXmods makes $10,000 in profit at the end of the year
At the end of the year, the shareholder can pay himself/herself around $10,000 (actually $9,300) in payroll, which is an expense and will eliminate the profit in the company. The company will also pay 7.5% (~$700) payroll tax on the $9,300 (an expense) and the individual will also pay the ~$700 payroll tax. The $9,300 will show up as regular W-2 income, which is subject to federal, state and local tax, but payroll tax is written off against income. So, out of the original $10,000 in profit, the shareholder receives $8,600 of regular taxable income. The shareholder will report $0 in Schedule K income.
-OR-
The shareholder of company nsXmods reports the $10,000 profit as Schedule K income and pay taxes on this income.
The shareholder of company nsXmods is free to write a check from nsXmods to himself/herself as a shareholder distribution. A shareholder can make a distribution in any amount at any time. In this case the shareholder will pay himself/herself a $10,000 distribution. The $10,000 Schedule K profit (not the distribution) is taxable as income and is not subject to payroll taxes.
Schedule K income is not subject to backup withholding so estimated federal and state pre-payments must be made quarterly to avoid paying a penalty. If significant, these quarterly payments can bear on cash flow enough to require great skill in cash flow management or an incredibly profitable year-round business. These pre-payments act to mitigate the payroll tax advantage as you are giving the government an interest-free loan.
--
Like I said above, I am not a CPA so take the above as such.
.02 (before tax)
DanO
Thanks for the info. I think I need to find a new CPA
-awais
-awais
Keep in mind that you have to pay yourself a reasonable amount in salary. I like to think of how much it would cost in payroll to hire someone who does my job day-to-day. I pay myself that amount. On the other end, I like to think that one is entitled to a reasonable return on their investment. What is reasonable? In the example above, it was $10,000 with a $50,000 inventory investment and who knows what other investments were made in previous years: land, buildings, computer equipment… We can make 10% in the stock market and work at McDonalds so I sure as hell be making better than 10% in my business.
Keep in mind we are talking about subchapter S Corporation types, which are well-suited for smaller business. If a business is set up C-Corp then the rules are completely different.
DanO
Keep in mind we are talking about subchapter S Corporation types, which are well-suited for smaller business. If a business is set up C-Corp then the rules are completely different.
DanO
