Thank you for this video. I now understand that S Corp pay taxes on profits. Therefore even if I leave the profits in the account or take it out i already paid taxes on the profits. What matters is if i take out more than my basis.
Thank you so much for this video!! I have had 2 CPAs push the SCorp on me to reduce my self employment taxes but I really, really do not want the hassle if at all avoidable. Sure their numbers look "good" on paper but in my little non CPA opinion, the savings are just not worth all the extras that go along w/the SCorp. I am diligent w/my quarterlies, sure I pay more in taxes than I would w/the SCorp but everything in my soul tells me to keep it status quo
It really brought me peace of mind knowing I don't have to do this, feeling like I am being pushed into making things complicated when they are simple and smooth right now. Maybe when I hit that $125k gross, but I don't know if I want to work that much LOL @@ThreeOaksWealth
I researched and I am an LLC and my tax pro did not tell me about electing as an S Corp!! I wanted too since I would be paying less taxes on FICA. My company has grown with over 350 employees so it's very much worth it
Summary: Sole Proprietor or LLC: $100,000.00 Gross Income - $50,000.00 Expenses = $50,000.00 Net Income - $50,000.00 W2 Wages (Federal Income Tax + Medicare + SSA 15.3%) S-Corp: $100,000.00 Gross Income - $50,000.00 Expenses = $50,000.00 Net Income - $25,000.00 W2 Wages (Federal Income Tax + Medicare + SSA 15.3%) - $25,000.00 Federal Income Tax (12%)
Are 3rd party business loans contributions from shareholders?? I have been taking out 3rd party business loans for my business in which i am 100 percent shareholder.
I believe loans such as PPP, EIDL which were all taken out in year 2020 are not classified as shareholders distribution even if the shareholder guarantees the loan.
so 15.3% SE Tax for S corp on W2 wages only and not on the owners distributions? Why would i want to pay myself higher W2 wages if i'd be subjected to higher SE taxes?
Because the irs makes you take some as w-2. It has to be reasonable. If you take too much as profit distributions they’ll reclassify profits as w-2 wages and penalize you if you’re audited. It’s a bit of a gamble, but the irs has been clear that scrutiny of s-corps and reasonable comp is a priority for them.
To be clear, the rule is that your w-2 wages are appropriate for your efforts and contributions to the business. If the average pay for someone with your reponsibilities in your industry is twice what you decide to pay yourself in w-2, it could be a problem if you’re challenged on it.
Thank you so much for this video, super informative. I have a similar question as Richard. I understand it's all taxed year one, whether some money is leftover or not, but how do you then take the money year two if any is left, without being taxed again, and still abiding by IRS rules.
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Great explanation
thank you. Simple narration. liked it
Glad you liked it
Thank you for the great explanation!
Glad it was helpful.
Good stuff
Thank you for this video. I now understand that S Corp pay taxes on profits. Therefore even if I leave the profits in the account or take it out i already paid taxes on the profits. What matters is if i take out more than my basis.
Great overview
Thank you!
Good information 🎉
Thank you!
Thank you so much for this video!! I have had 2 CPAs push the SCorp on me to reduce my self employment taxes but I really, really do not want the hassle if at all avoidable. Sure their numbers look "good" on paper but in my little non CPA opinion, the savings are just not worth all the extras that go along w/the SCorp. I am diligent w/my quarterlies, sure I pay more in taxes than I would w/the SCorp but everything in my soul tells me to keep it status quo
You're welcome. Glad you found it helpful!
It really brought me peace of mind knowing I don't have to do this, feeling like I am being pushed into making things complicated when they are simple and smooth right now. Maybe when I hit that $125k gross, but I don't know if I want to work that much LOL @@ThreeOaksWealth
I researched and I am an LLC and my tax pro did not tell me about electing as an S Corp!! I wanted too since I would be paying less taxes on FICA. My company has grown with over 350 employees so it's very much worth it
You missed the fact that schedule C gets a SE tax credit of the employer 7.65% on schedule 3 of the 1040
And your owner distribution is taxed at the capital gains rate? Or at your income tax rate?
can we take out w2 differently amount every month? thanks!
❤
Summary:
Sole Proprietor or LLC:
$100,000.00 Gross Income
- $50,000.00 Expenses
= $50,000.00 Net Income
- $50,000.00 W2 Wages (Federal Income Tax + Medicare + SSA 15.3%)
S-Corp:
$100,000.00 Gross Income
- $50,000.00 Expenses
= $50,000.00 Net Income
- $25,000.00 W2 Wages (Federal Income Tax + Medicare + SSA 15.3%)
- $25,000.00 Federal Income Tax (12%)
Thank you for the video. My question is how much is a s-corp usually taxed on profits?
They're taxed at your personal income tax rates. So anywhere from 10% to 37% depending on your income and filing status.
So if you pay yourself a reasonable salary and depending on yout filing status, you can pay less taxes. And your S corp would be paying less in FICA!!
Are 3rd party business loans contributions from shareholders?? I have been taking out 3rd party business loans for my business in which i am 100 percent shareholder.
It depends. (Cop out answer, but true unfortunately). Best to ask your tax person on this one.
I believe loans such as PPP, EIDL which were all taken out in year 2020 are not classified as shareholders distribution even if the shareholder guarantees the loan.
so 15.3% SE Tax for S corp on W2 wages only and not on the owners distributions? Why would i want to pay myself higher W2 wages if i'd be subjected to higher SE taxes?
IRS requires “reasonable compensation”, otherwise people would pay themselves $1 on a W2
Because the irs makes you take some as w-2. It has to be reasonable. If you take too much as profit distributions they’ll reclassify profits as w-2 wages and penalize you if you’re audited. It’s a bit of a gamble, but the irs has been clear that scrutiny of s-corps and reasonable comp is a priority for them.
To be clear, the rule is that your w-2 wages are appropriate for your efforts and contributions to the business. If the average pay for someone with your reponsibilities in your industry is twice what you decide to pay yourself in w-2, it could be a problem if you’re challenged on it.
@PaulDeLeo my reasonable salary was about 400,000. So would I be able to lower my salary and it would still be reasonable with irs guidelines
@@CryptoQueen8888 Almost certainly.
what if you don't take it all out year 1 but then take it out year 2?
Same rules apply. You’ll be taxed on the profits in year one whether you leave them in the business or take them out.
Thank you so much for this video, super informative. I have a similar question as Richard. I understand it's all taxed year one, whether some money is leftover or not, but how do you then take the money year two if any is left, without being taxed again, and still abiding by IRS rules.
@elizabethfarris7688 I had to think it through. The money left over is just money sitting the bank account & not income for year 2.
@richardlebreton6690 thank you so much, that of course does make sense!
Man fuck taxes! 😪