Schedule a FREE CALL with a Tax Professional: go.truic.com/3WAgdzi (See how much you could save on your taxes) For Businesses that are profitable, and the goal is to take the profit out of the company in a tax efficient manner, S-corp is a great tax designation to elect for your business., potentially saving thousands depending on the level of profitability of your business. Recommended formation service - We have negotiated with Northwest to provide the best discount and packages for our users, we get compensated when users use our discount links. 💼 For LLC 75% 𝗗𝗶𝘀𝗰𝗼𝘂𝗻𝘁 link -go.truic.com/3LQfqog (paid) Fees are as follows $29 + state fee + $9 for BOI (this optional but recommended as failure to do so can result in a fine of $500/day) 🏆 For S-Corp 60% 𝗗𝗶𝘀𝗰𝗼𝘂𝗻𝘁 link - go.truic.com/3ZSZZl2 (paid) Fees are as follows $89 + state fee + $9 for BOI (this optional but recommended as failure to do so can result in a fine of $500/day) 🧮 To see how much you can save by forming an S corp check out our Scorp calculator: howtostartanllc.com/form-an-llc/llc-vs-s-corp-whats-the-difference#calculator
I’m confused because I’m on track to making $500k with my plumbing business, and I’m the only employee. So reasonable salary for a plumber is like $60k but the 60/40 rule would be over $200k and that’s accounting for like $100k in business expenses so where’s the balance???
The 60/40 rule is a quick rule of thumb to determine the split of compensation into salary and distributions. But in some situations, it may result in an S Corp owner paying more, rather than less, in employment taxes. It’s better to consider the factors we set out in the video, particularly how much you would need to pay someone to do the job you’re doing. Also, a CPA with a good understanding of S corp taxation would be able to determine what split would be optimal for tax savings while mitigating the risk of audit.
When I pay myself a reasonable salary, do I have to pay payroll contributions like FICA amd FUCA both as an employer and an employee? Or only or the other?
When an S Corp pays a working member a reasonable salary, it behaves like an employer and so must pay the employer portion of FICA taxes, which is 7.65% of the salary, plus the salary. The working member is treated as an employee, and so must pay the employee portion of FICA taxes, i.e. 7.65% of salary. So together, the S Corp and its shareholder pay FICA taxes of 15.3%. The S Corp must also pay FUTA tax. The good news is that paying those items reduces the S Corp's taxable income.
Schedule a FREE CALL with a Tax Professional: go.truic.com/3WAgdzi
(See how much you could save on your taxes)
For Businesses that are profitable, and the goal is to take the profit out of the company in a tax efficient manner, S-corp is a great tax designation to elect for your business., potentially saving thousands depending on the level of profitability of your business.
Recommended formation service - We have negotiated with Northwest to provide the best discount and packages for our users, we get compensated when users use our discount links.
💼 For LLC 75% 𝗗𝗶𝘀𝗰𝗼𝘂𝗻𝘁 link -go.truic.com/3LQfqog (paid)
Fees are as follows $29 + state fee + $9 for BOI (this optional but recommended as failure to do so can result in a fine of $500/day)
🏆 For S-Corp 60% 𝗗𝗶𝘀𝗰𝗼𝘂𝗻𝘁 link - go.truic.com/3ZSZZl2 (paid)
Fees are as follows $89 + state fee + $9 for BOI (this optional but recommended as failure to do so can result in a fine of $500/day)
🧮 To see how much you can save by forming an S corp check out our Scorp calculator:
howtostartanllc.com/form-an-llc/llc-vs-s-corp-whats-the-difference#calculator
The problem with the 60/40 formula is you risk paying way more in payroll tax than what might be necessary.
Furthermore , if your company isn’t that profitable, that formula still might not satisfy the reasonable compensation provisions.
Good point, 60% would assume that you are meeting the reasonable compensation amount already.
That is true and 60/40 is conservative.
I’m confused because I’m on track to making $500k with my plumbing business, and I’m the only employee. So reasonable salary for a plumber is like $60k but the 60/40 rule would be over $200k and that’s accounting for like $100k in business expenses so where’s the balance???
The 60/40 rule is a quick rule of thumb to determine the split of compensation into salary and distributions. But in some situations, it may result in an S Corp owner paying more, rather than less, in employment taxes. It’s better to consider the factors we set out in the video, particularly how much you would need to pay someone to do the job you’re doing. Also, a CPA with a good understanding of S corp taxation would be able to determine what split would be optimal for tax savings while mitigating the risk of audit.
When I pay myself a reasonable salary, do I have to pay payroll contributions like FICA amd FUCA both as an employer and an employee? Or only or the other?
When an S Corp pays a working member a reasonable salary, it behaves like an employer and so must pay the employer portion of FICA taxes, which is 7.65% of the salary, plus the salary. The working member is treated as an employee, and so must pay the employee portion of FICA taxes, i.e. 7.65% of salary. So together, the S Corp and its shareholder pay FICA taxes of 15.3%. The S Corp must also pay FUTA tax.
The good news is that paying those items reduces the S Corp's taxable income.
Good video. SUPER distracting/excessive hand movements.
Thanks for the feedback! And thanks for watching.