Read on Twitter
Everyone thinks they need an S Corp.
You might!
Have you ever wondered what an S Corp actually does for you?
This is purely a US tax concept.
A Thread...
You might!
Have you ever wondered what an S Corp actually does for you?
This is purely a US tax concept.
A Thread...
First, Self-Employment Tax (âSE Taxâ)
If you are self employed - LLC or not - and have no other sources of income, you will be taxed 15.3% of your profits to $137,700 of profit and 2.9% profits after $137,700.
It approximates payroll tax.
This is in addition to income tax.
If you are self employed - LLC or not - and have no other sources of income, you will be taxed 15.3% of your profits to $137,700 of profit and 2.9% profits after $137,700.
It approximates payroll tax.
This is in addition to income tax.
Say your business profits $150k. Sole proprietor or single member LLC.
In this example your SE Tax would be approx. $21,425.
Hereâs how the S Corp could save you tax...
In this example your SE Tax would be approx. $21,425.
Hereâs how the S Corp could save you tax...
Letâs say in this example, that a business like yours would pay a manager like you $50k in a salary.
In an S Corp you can pay yourself a reasonable salary which is deductible to the business (income to you) so itâs a wash, BUT only the salary would have SE Tax...
In an S Corp you can pay yourself a reasonable salary which is deductible to the business (income to you) so itâs a wash, BUT only the salary would have SE Tax...
So you would have $150k profit in the business and pay $21,245 SE Tax as a sole proprietor or single-member LLC, BUT...
With your S Corp there would be $7,650 of SE Tax on your $50k salary and the remaining $100k of profit has $0 SE Tax.
Thus, the S Corp saves $13k+ SE tax...
With your S Corp there would be $7,650 of SE Tax on your $50k salary and the remaining $100k of profit has $0 SE Tax.
Thus, the S Corp saves $13k+ SE tax...
The key is to pay yourself a reasonable salary that you can document. Itâs a science and an art, but should save you tax.
Okay so say you are in place where an S Corp could benefit you.
How do you file for one?
How do you file for one?
An S Corp isnât actually a legal entity.
Most commonly an LLC or a Corporation will elect to be taxed under Subchapter S of the Internal Revenue Code.
So when someone says they have an S Corp, they actually donât - they are just being taxed as one. Nuances, I know.
Most commonly an LLC or a Corporation will elect to be taxed under Subchapter S of the Internal Revenue Code.
So when someone says they have an S Corp, they actually donât - they are just being taxed as one. Nuances, I know.
This election is made by filing a Form 2553.
Itâs actually quite easy.
What isnât easy is keeping up with all the S Corp rules to make sure you keep your election.
Hereâs where I recommend a CPA.
Not me, Iâm not currently taking new clients, but someone in your area...
Itâs actually quite easy.
What isnât easy is keeping up with all the S Corp rules to make sure you keep your election.
Hereâs where I recommend a CPA.
Not me, Iâm not currently taking new clients, but someone in your area...
Hereâs how to find and hire an accountant. https://twitter.com/AskForTaxAdvice/status/1298094288514031616
