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Do you NEED an S Corp?!
You might!
Have you ever wondered what an S Corp actually does for you?
***Thread***
You might!
Have you ever wondered what an S Corp actually does for you?
***Thread***
2) First, Self-Employment Tax (“SE Tax”)
If you are self employed - entity 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.
If you are self employed - entity 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.
3) For example, let's say your business profits $150k, either as a sole proprietor or single member LLC.
In this example your SE Tax would be approx. $21,425.
Here’s how having a S Corp could save you tax...
In this example your SE Tax would be approx. $21,425.
Here’s how having a S Corp could save you tax...
In this example, let's say 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 shifting profit to salary, BUT only the salary would have SE Tax, not any of the profit.
In an S Corp you can pay yourself a reasonable salary shifting profit to salary, BUT only the salary would have SE Tax, not any of the profit.
No S Corp:
-$150k profit in the business and
-$21,245 SE Tax
With S Corp:
- $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...
-$150k profit in the business and
-$21,245 SE Tax
With S Corp:
- $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.
Doing this is both a science and an art, but should save you tax, especially in certain types of business.
Doing this is both a science and an art, but should save you tax, especially in certain types of business.
So how do you "get" an S Corp.
You really don't. You just file a form to have your current entity (LLC or Corporation, usually), to be taxed as an S Corp.
An S Corp is not a legal entity, but a tax election.
You really don't. You just file a form to have your current entity (LLC or Corporation, usually), to be taxed as an S Corp.
An S Corp is not a legal entity, but a tax election.
This election is made by filing a Form 2553.
What isn’t easy is keeping up with all the S Corp rules to make sure you keep your election.
I definitely recommend having a CPA if you want to make an maintain an S election.
What isn’t easy is keeping up with all the S Corp rules to make sure you keep your election.
I definitely recommend having a CPA if you want to make an maintain an S election.
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If learning how to save this $13k was helpful to you, think of all the other ways you could learn to save tax from my guide containing 60 more THREADS in 121 pages on topics like this.
If learning how to save this $13k was helpful to you, think of all the other ways you could learn to save tax from my guide containing 60 more THREADS in 121 pages on topics like this.
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