IPAfan
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Post by IPAfan on Apr 25, 2011 2:11:19 GMT -5
2010 was my first year in business and quite slow by all accounts. However, so far in 2011 business has been developing nicely. In fact its been developing so nicely that I'm worried about taxes for really the first time in my life.
Right now I'm modeling $10,000 a month in gross business income and $2,000 a month on business expenses for net business profit of around $96,000. I expect that by the end of 2011 to have a higher level of business expenses and hopefully a correspondingly higher gross income.
I've been looking at ways to manage the tax bill (mostly SE tax since the 3 kids keep the other taxes low.) I'm a bit disturbed to see that our charitable contributions basically make no impact on our tax situation. We're trying to give 10-12% of our gross business income, and i'd hoped it would have better tax implications.
Anyway, I will consider a SEP IRA, but this doesn't affect SE tax which is big. I've really got two strategies in mind:
1) Incorporate as an S-corp; pay myself $30/hour (reasonable salary) for about $60,000 per year. Pay income tax on the extra profit, but avoid SE tax so long as my compensation is reasonable. CON: Loophole may get changed at some point
2) Incorporate as a C-corp; retain up to $50,000 per year in earnings and pay a flat 15% tax.
I'm a sole proprietor right now, so both of these will come with additional overhead. However, i'm looking at saving around $4-$6k a year in tax liability if I make $96k in net business income. The tax advantages of the business drop off after $110k in earnings, but I doubt I'll be making much more than $110k in the near future.
Any other ideas on ways to legally reduce SE tax?
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IPAfan
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Post by IPAfan on Apr 25, 2011 2:20:21 GMT -5
Another idea I just had. To get more bang for the buck on the charitable contributions I could make the charitable contributions out of the C-corp. I googled the idea, and it looks like the business can deduct up to 10% of its net income, and any additional contribution could be carried over to a future year.
I think this means I could make $50,000 in a C corp. Donate $10,000 to charity. Pay 15% tax on $45,000 in profit, and carry over $5,000 for a future year. That would probably save me about $750 in 2011 as opposed to nothing if we donate $12,000 (according to the turbotax estimator I'm looking at.)
Still can't understand why I wouldn't get any advantage out of charitable contributions if I was at the 15% marginal rate.
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mwcpa
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Post by mwcpa on Apr 25, 2011 5:43:32 GMT -5
beer....
you may need to meet with a local qualified tax professional to review things...
while there may be tax benefits to setting up a corporate entity to operate your business one needs to be aware of a number of items (this is not a total list)
1. cost of maintaining the corporation (including set up costs) versus any possible tax savings (state and local tax costs, by example, NYC does not recognize the "S" status and the tax rate is 8.85% of profits) 2. your definition of "reasonable" may not be the same as the IRS if you "take" all the profits"... there are many court cases on this where tax payers lose, especially in the case of a thinly capitalized service corporation.... you cannot expect the IRS to give up on the FICA and medicare tax these days. if you are funding a pension today, under the S or C status you would save FICA and Medicare taxes as these contributions are based on a percentage of salary and are BEFORE such tax.... have a schedule C that makes 100K, contribute 20K to a pension, the entire 100K is subject to SE tax (15.3%)... put that in an S corp, have the same 100K in salary, put the same 20K into a pension, now, simple math only, the FICA and Medicare (15.3%) is based on 80K 3. if the C corporation "retains" the profits you cannot take it for yourself, not sure what your personal cash flow needs are. 4. if you are a personal service corporation (as defined in the law) you may not get the benefit of the low 15% corporate tax rate.
maybe you should bring this to the tax corner where many qualified individuals can provide more insight.
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973beachbum
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Post by 973beachbum on Apr 25, 2011 9:23:58 GMT -5
This is what I was thinking. Beer is a lawyer and I can't think of any way for a law practice to not be considered a PSC. Beer I have struggled with this same thing as we are starting an engineering comp. Do you happen to have any friends who are Attorneys/Accountants? I would think being a lawyer you might have a former class mate or two that would fit the bill. Maybe even set up a barter/trade that would benefit both of you. Just a thought.
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IPAfan
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Post by IPAfan on Apr 25, 2011 9:24:25 GMT -5
Good plan. I can re-post in the tax corner later. First i'm pretty familiar with the cost of setting up and running either an S-corp or C-corp. I'd probably be saving around $5,000 a year, and paying $800 + the cost of getting a corporate tax return prepared.
I wasn't aware that pension contributions were pre SE tax. I know that traditional IRA/401ks don't affect the SE tax.
Pretty sure I could get away with $30/hr as reasonable based on my level of experience, but something about the S-corp sounds like a huge hassle.
Wow, the PSC pretty much ruins the C-corp idea. Thanks for pointing that out or I would have been looking at the sliding table. At 35% a C-corp makes no sense at all to me.
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whoisjohngalt
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Post by whoisjohngalt on Apr 25, 2011 9:25:06 GMT -5
I thought you could elect to be tax as a corp, (i.e. "check the box") without actually setting your business as a corp?
Lena
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IPAfan
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Post by IPAfan on Apr 25, 2011 9:33:23 GMT -5
You're right 973, I hadn't seen the PSC exception to the scaled tax rates on C-corps until mwcpa mentioned it. Sadly I don't know any tax lawyers. I know one accountant that I don't trust to do my own taxes (and who I don't refer any work to.) I need to work on finding some smart tax people. Trade is difficult since I mainly do criminal defense, but i'm willing I will probably incorporate my own Professional Corporation, and it sounds like S status is the obvious choice. I think I can still avoid a little SE tax, I'd just like to avoid a lot more. Wish that my business income came from something more tax efficient than a pure service. If only I didn't have to practice law in California I'd incorporate in Barbados and be done with it.
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IPAfan
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Post by IPAfan on Apr 25, 2011 9:35:01 GMT -5
johngalt,
Because of my state's rules I can only incorporate as a Professional Corporation. However I can elect either S or C status.
I wonder if there are any tax advantages to some sort of limited partnership arrangement. I suspect this would be similar to S status, but not sure about SE tax.
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whoisjohngalt
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Post by whoisjohngalt on Apr 25, 2011 9:37:28 GMT -5
Would you let us know what you decide? I am very interested in this kind of stuff.
thanks Lena
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973beachbum
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Post by 973beachbum on Apr 25, 2011 10:02:54 GMT -5
Beer I have been wrestling with this exact problem for a couple of months. If you come up with any good idea let me know!
Have you thought about having the Mrs help out on the business as a paid EE? It might not help much as far as the corp tax goes but it would allow for pretax contributions to a pension or IRA for her which as a SAHM she wouldn't have. Just a thought.
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mwcpa
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Post by mwcpa on Apr 25, 2011 12:33:51 GMT -5
"I wasn't aware that pension contributions were pre SE tax." at the corporate level, not the schedule c level...
"I could get away" bad choice of words councelor... trying to get away with something will get you into trouble... you should know that....
"I thought you could elect to be tax as a corp, (i.e. "check the box") without actually setting your business as a corp" that has generally to do with LLCs electing to be taxed as corporation
"If only I didn't have to practice law in California I'd incorporate in Barbados and be done with it" it's not just California that has rules related to professionals licensed to work in a state... NY has rules, NJ has rules, every state in the union has rules... and the rules are not tax rules, it's professional license rules... remember, just because you incorporate in local A does not mean you can avoid tax if you operate in local B... a big surprise to many who get love letters from the FTB (cali's tax department) after they set up their company in Nevada and operate in Cali... or a bigger surprise when the City of BH or LA knock on the door looking for their business tax....
"any tax advantages to some sort of limited partnership arrangement" can a non lawyer own an interest in a law firm in Cali.... you could not limit your exposure to the SE tax as the manager in an LP when the LP is doing services...
"Have you thought about having the Mrs help out on the business as a paid EE" good idea as long as she actually does work... but it will not save SE tax and will cost UI and other taxes....
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IPAfan
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Post by IPAfan on Apr 25, 2011 13:43:11 GMT -5
I'm just tossing ideas around. Trying to decide which approach to take but want to keep it reasonably simple. Barbados would only work if you earned income from investment returns or consulting in a tac haven so wouldn't ever help a law practice.
I can't fee split with a nonlawyer or have a nonlawyer own an equity interest in my business. However a non lawyer could own debt securities. One idea would be to have a self directed Ira hold high rate long term bonds. This is a prohibited transaction and is complicated to avoid.
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Plain Old Petunia
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Post by Plain Old Petunia on Apr 25, 2011 13:49:00 GMT -5
You aren't going to escape SE tax by incorporating, you will merely re-arrange it and call it something else. The corporation will pay its half of SS and Medicare and you as an employee will pay your half.
ETA: Note that 7.65 + 5.65 = 13.30 (2011) 7.65 + 7.65 = 15.30 (all other years)
That's what SE tax is.
I'm not suggesting that incorporating isn't an idea worth exploring, it may benefit you. I am only suggesting that escaping SE tax isn't one of the benefits.
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IPAfan
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Post by IPAfan on Apr 25, 2011 13:56:23 GMT -5
I can avoid some with an S Corp because I can pay myself a reasonable salary and still generate corp income which gets reported on a K1 and is NOT subject to SE tax at this point. Only works if you make more than you might reasonably be paid.
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swamp
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Post by swamp on Apr 25, 2011 14:10:00 GMT -5
" can a non lawyer own an interest in a law firm in Cali.... you could not limit your exposure to the SE tax as the manager in an LP when the LP is doing services... quote] A nonlawyer can't be a partner in a law business in NY. Beerfar, when you figure something out, let me know. I'm getting hammered tax wise, but mostly because DH makes decent money too. I'm in a general partnership. No corp, no LLC, no LLP.
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973beachbum
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Post by 973beachbum on Apr 25, 2011 14:12:46 GMT -5
Agreed. My thought is that the practice must have some work that needs doing that doesn't require a lawyer doing it. Maybe she could do some paperwork or the books or such. I know in the long run employer taxes will eat up any actually savings. I just thought that as a SAHM it would give her an opportunity to put into a pension or IRA that she wouldn't otherwise be able to in her own name. Just a thought.
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IPAfan
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Post by IPAfan on Apr 25, 2011 14:57:54 GMT -5
I can hire my wife and plan to do so. At this point I'm looking to increase k1 income to avoid SE taxes (assuming we go with s Corp) If I can delegate clerical or paralegal work to an employee (dw To begin with) at 1/3-1/2 of my personal w2 income then I decrease total w2 income and increase k-1 profit which will be taxed at my regular income tax rate (in the marginal 15% but can reduce with more retirement contributions)
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mwcpa
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Post by mwcpa on Apr 25, 2011 17:06:10 GMT -5
beer...
you state presently you "net" 96K.... your idea is to set this up as an S corp and pay yourself a 62400 salary for the services you render to what will probably be a thinly capitalized service corporation.... the company share of FICA/Medicare will be 4774, FUTA will be 56, Cali SUI and other payroll fees about 1000, Cali minimum franchise tax 800, Cali sec of state fees 25, maximum pension 15600 (assuming a 25% profit sharing plan) leaving you about 11345.... that may work.... but be careful.... you should really sit with a local qualified tax professional, as an attorney who is not knowledgeable in the tax law you should seek one out....
courts look at the following (taken from RIA)....
"1. the character and financial condition of the corporation; 2. the role the shareholder plays in the corporation, including the employee's position, hours worked, and duties performed; 3. the corporation's compensation policy for all employees and the shareholder's individual salary history including the corporation's internal consistency in establishing the shareholder's salary; 4. how the compensation compares with similarly situated employees of similar companies; 5. conflicts of interest in setting compensation levels; and 6. whether a hypothetical independent investor would conclude that there is an adequate return on investment after considering the shareholder's compensation."
in addition these are also looked at "1. the employee's qualifications; 2. the size and complexity of the business; 3. a comparison of salaries paid to sales and net income; 4. general economic conditions; 5. comparison of salaries to shareholder distributions and retained earnings; 6. compensation paid in prior years; 7. the corporation's dividend history; 8. whether the employee and employer dealt at arms' length; 9. corporate intent; and 10. whether the employee guaranteed the employer's debt."
"The IRS and the courts have made it increasingly clear that distributions to an actively employed S corporation shareholder can be recharacterized as wages subject to payroll taxes if it is determined the distributions are actually disguised compensation"
here are some cases you should read... there are many more who tried the "save the FICA/Medicare tax" by setting up an S corp and taking S corp profits in lieu of salary for services rendered. SPICER ACCOUNTING, INC. v. U.S., Cite as 66 AFTR 2d 90-5806 (918 F2d 90), 11/01/1990 RADTKE v. U.S., Cite as 63 AFTR 2d 89-1469 (712 F.Supp. 143), 04/11/1989 (my note.. Radtke was a lawyer and he lost badly) DUNN & CLARK, P.A. v. COMM., Cite as 73 AFTR 2d 94-1860 (853 F Supp 365), 03/25/1994 (my note... more lawyers) WATSON, P.C. v. U.S., Cite as 105 AFTR 2d 2010-2624 (714 F. Supp.2d 954, 2010-1 USTC P 50,444), 05/27/2010 (a CPA, a bad one in my opinion)
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tskeeter
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Post by tskeeter on Apr 25, 2011 17:45:34 GMT -5
Beer, consult with a small business tax expert. Look specifically at opportunities to spend money this year to grow your business in future years. In the past couple of years, small businesses have been able to charge some equipment purchases (like a car) and the like to expense in the year in which they were purchased, rather than depreciating them over several years. This would reduce your current year income and taxes while setting you up to grow your business.
The other thing to discuss with the tax guy is retirement plans. Small business owners can set up retirement plans that allow a lot of the income to be put into retirement plans. In addition to certain tax advantages, doing this has the additional advantage that retirement funds are usually sheltered in the event of a bankruptcy and may be sheltered from creditors.
A third discussion to have is how you can hire your kids to work for your business as a means of funding their college savings. This is a bit of a balancing act (I believe that kids with too much income are taxed at the parent's rate), but may allow you to shift business income to kids with lower tax rates. Note that your kids actually have to provide a service to your business and the compensation must be reasonable for those services.
Does your business pay 100% of the medical insurance for your family as an employee benefit? The real advantage is being a small business owner is that the tax code allows shifting of items that are personal, after tax expenses, for many of us to the business. The business can provide a car, as long as you reimburse the business for your personal use of the car, which may be only a small portion of the total miles. Look at your other personal expenses and think about how they could be shifted to your business. You'd like to go to Hawaii? Nothing prevents you from attending a seminar there, or something similar, extending your time there to include some vacation, and having the business pay for the appropriate portion of the expenses. This could result in lower personal expenses for your vacation than if you have just gone on a simple vacation without any business purpose for traveling to the same location.
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mesquite77
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Post by mesquite77 on Apr 26, 2011 0:32:16 GMT -5
Something doesn't sound right about your charitable contributions not making any difference. As long as you are itemizing, they should be deductible saving you your marginal tax rate. A way to add to the benefit of contributing 10-12% is to give appreciated assets you've held for more than 1 yr to the charity (generally stocks). You won't pay tax on the gain and will be able to deduct the value of the stock given.
I think the IRS is squeezing the dodging of SE tax, I wouldn't want a salary less than the FICA limits in order to play that game.
Hiring kids to help and having them contribute their salaries into Roth IRAs and planning some medical flex/HSA were some other good ideas I've heard in recent CPE.
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Post by commentator on Apr 26, 2011 0:46:16 GMT -5
Something doesn't sound right about your charitable contributions not making any difference. As long as you are itemizing, they should be deductible saving you your marginal tax rate. A way to add to the benefit of contributing 10-12% is to give appreciated assets you've held for more than 1 yr to the charity (generally stocks). You won't pay tax on the gain and will be able to deduct the value of the stock given. I think the IRS is squeezing the dodging of SE tax, I wouldn't want a salary less than the FICA limits in order to play that game. Hiring kids to help and having them contribute their salaries into Roth IRAs and planning some medical flex/HSA were some other good ideas I've heard in recent CPE. A few points. First, it is self-employment tax that is not reduced by an individual's charitable contributions. That, I believe is what the original statement referred to. Charitable contributions by S-corps and partnerships flow to the owners Schedule A. Charitable contributions by a C-corp are limited. Second, wages paid to a dependent child will avoid SE tax if and only if the child works for his/her parent. Working for the parent's 100% owned corporation is NOT working for the parent. Also, compensation to the child must be reasonable for the services performed by the child. Third, this discussion should be on Tax Talk.
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IPAfan
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Post by IPAfan on Apr 26, 2011 13:55:04 GMT -5
Thanks for all the good feedback. I've been busy. Will keep you all updated. I will most likely end up going with an S-corp, and I will make sure to pay a fair salary (and I'll get it backed up.) Have you all seen the job market? Someone with my credentials is lucky to be serving fries and getting foodstamps right now
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cpadvisor
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Post by cpadvisor on Apr 28, 2011 16:51:04 GMT -5
There is A LOT of bad tax advice that regular posters give on these boards, and posters like mwcpa & commentator (& other tax professionals) are very valuable.... however, I think they should also lighten up a little in this circumstance. I think you're both overreacting.
Also, I think it would be helpful if you not only point out all the reasons why something cannot be done, but also the possible solutions to the OP's problem, if any.
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Post by commentator on Apr 28, 2011 20:03:07 GMT -5
There is A LOT of bad tax advice that regular posters give on these boards, and posters like mwcpa & commentator (& other tax professionals) are very valuable.... however, I think they should also lighten up a little in this circumstance. I think you're both overreacting. Maybe, maybe not. I am skeptical when a stranger disrespects me, my profession or my colleagues, then claims to have been joking. When that person puts all the blame on me for the communications break down (assuming that is what it was), I've even more doubtful of that person's motivation. It is not clear to me that the OP's entity choices are limited to S Corp or C Corp even though he seems to have decided those are his only choices. There are other decisions to be made with significant tax implications. Therefore, again, I urge the OP to engage the services of a local tax professional with the approriate expertises.
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IPAfan
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Post by IPAfan on Apr 28, 2011 23:22:30 GMT -5
My only choice is a Professional Corporation, Limited Partnership, Limited Liability Partnership, General Partnership, or Sole Proprietorship (which I am now.)
If I incorporate as a PC then I can elect C or S status. If I am a general partner then I am taxed like I am now (as a sole proprietor.) Not really sure that any sort of partnership is appropriate at this point, so I do think it really boils down to remaining a sole proprietor or incorporating.
The idea of using C status instead of electing S status was a mere passing whim. Everyone I know that's incorporated does S status, and I do know several that avoid a PORTION of the SE tax by paying income tax on K-1 income generated by the S-corp.
I am well advised. I do know lawyers that practice in the area, and can and do get advice from them. However, when I do actually incorporate, I will do the incorporation myself (The work of incorporating a business, getting an EIN, electing S status is pretty straightforward), but will definitely want to hire a CPA to do my business returns.
Also, I find these posts somewhat amusing. We all know that people have been using the S-corp "loophole" for a long time. That's why there was all the hullabaloo about the loophole getting closed. A good business can earn profit even while paying a reasonable salary to employees.
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mwcpa
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Post by mwcpa on Apr 29, 2011 6:07:11 GMT -5
beer... your comment is very true ("A good business can earn profit even while paying a reasonable salary to employees"), but my comment are not meant for anyone's amusement but they are the reality of the tax law as Congress wrote and the courts have concluded.
While the IRS takes issue with what they feel is unreasonable compensation, state's are jumping on the band wagon too, recently I had 5 clients "audited" by the NYS DOL to make sure all "payroll" was reported properly, they are focusing on any and all payments to shareholders (in NY all payments to shareholders of an S corp can be deemed subject to UI tax... and with the sharing of data between states and the IRS these days one needs to be careful... I had a client get hit with DOL, Sales tax, and IRS audits all at once, thank goodness it was not for returns I prepared so the issues were previously unknown to me).
The issue is the definition of reasonable... so, be sure to dot i's and cross t's, if similar sized law firms pay the managing partner/shareholder the level of salary you propose to pay to yourself then things should be cool.... document it.... but, it is difficult for the sole owner of a professional corporation with no other employees to justify that any profits paid (there is the key, paid) to the sole shareholder is not compensation subject to FICA and Medicare taxes.... if you follow the flow of my example above related to your $$, you will see your plan can work, you just need to be careful....
I have had to address this issue with a number of S corp audits over the years, and my clients did their homework and documented what was reasonable or had significant capital invested (most recent was a client who had invested 1 million+ into his business, the business paid him a fixed salary to manage the affairs of the business and the K-1 profit had a relationship to his investment in the company, plus he had the luxury of not taking distributions and re-invested profits back into the business, so he did not take any cash beyond his salary)
this "loophole" came up during the Bush II reelection campaign during the vice presidential debates when Mr. Cheney seems to have called out Mr. Edwards on this.... I am sure many did not know what the sparing was about when Mr. Cheney alluded that Mr. Edwards not paying his fair share of tax and use of an s corp for his law firm (at least that is what I got out of the exchange)...
In the final analysis be sure to document the salary and be sure to docuement any "dividends" paid out of K-1 profits (that's a way IRS can get you, dividends are declared then paid, not just paid whenever)
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Post by commentator on Apr 29, 2011 8:54:53 GMT -5
Generally for a personal service type S-corp (such as a law firm), upon audit the IRS will assert that any non-salary distributions to an owner-employee are, in fact salary. Then, the IRS will assess back FICA and Medicare tax on the corporation My sources tell me the IRS seldom if ever asserts that _undistributed_ profits are subject to FICA and Medicare. It is only when non-salary distributions are made that this becomes a problem.
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IPAfan
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Post by IPAfan on Apr 30, 2011 10:29:42 GMT -5
I've been really busy and haven't had a chance to check in on this thread. So I've got a few comments.
commentator, "Maybe, maybe not. I am skeptical when a stranger disrespects me, my profession or my colleagues, then claims to have been joking. When that person puts all the blame on me for the communications break down (assuming that is what it was), I've even more doubtful of that person's motivation."
I hope you're not referring to me. I rarely have time to sit down and edit my posts here. I certainly meant no disrespect to you or your profession. The only quibble I have with you is your handle which states your absolute disdain for "illegal tax protesters." I find it amusing to disdain a person for exercising the constitutional right to free speech, but whatever. I know you've gotta make a living, so you may as well talk your own book, right?
mwcpa and commentator - I'm sure that audit is a risk, and if I do incorporate as an S-corp I certainly plan to hire a good accountant to handle my business and personal taxes. I keep hearing that I need to go consult with an expert in small business tax planning. I'm actually FRIENDS with two, and both run S-corps themselves. One is a tax lawyer and another handles mostly business incorporation and business litigation.
Despite the constant refrains that I don't know what I'm talking about, that is not the case. I've spent quite a bit of time researching my options and an S-corp keeps coming out on top. The C-corp idea was a passing idea that I had right after posting my first post on here. Mwcpa set me straight on the "PSC" rule, and that makes the whole C-corp idea moot. It does not surprise me at all that the IRS has gone crazy on business owners in the past, but it also wouldn't surprise me if these business owners weren't paying themselves ANY SALARY at all.
I appreciate the set of guidelines that mwcpa posted. Again, I never ever indicated that I planned on incorporating an S-corp, paying myself a random salary, and trying to avoid taxes. I'm not stupid, and I'm clearly going to follow the guidelines. The point is that I can compensate myself hourly, at an ABOVE MARKET RATE (I'm in a business where most of the lawyers with my age and level of experience are playing video games and ignoring collection letters from their education lenders.) Keep in mind that I could probably get away with paying myself a SMALL AMOUNT less than I'm making in net profit, even if I paid myself an above avg. hourly rate. However, I WASTE A TON OF TIME doing my own clerical/paralegal work. I could delegate many of my tasks to someone at $10-$15/hr and improve business profitability PER HOUR of my work (which equates to more business income and less w-2 income not to mention the ability to take more clients.)
Lastly, commentator, I wasn't aware that it made any difference if an S-corp retained profits or distributed them. However, I fully anticipate retaining as much profit as possible. I have a lot of plans to grow the business by doing more advertising and hiring at least one employee. I want enough cash to cover several months of expenses (including my own salary), so I'd probably like to retain at least $50,000 inside the S-corp. At this point I'd only be starting with possibly $8,000 (and an existing business with a fair amount of accounts receivable.)
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Post by commentator on Apr 30, 2011 15:36:59 GMT -5
I hope you're not referring to me. No, Beerfan, I was not referring to you.
The only quibble I have with you is your handle which states your absolute disdain for "illegal tax protesters." I find it amusing to disdain a person for exercising the constitutional right to free speech, but whatever.
Illegal tax protesters evade lawful income taxes and attempt to persuade others to break the law as well. Exercising my free speech rights, I will repeatedly express my disdain for those criminals.
I know you've gotta make a living, so you may as well talk your own book, right?
I expect people to obey the law. I'm not sure what you mean by "talk your own book," but I suspect it wasn't a compliment.
I wasn't aware that it made any difference if an S-corp retained profits or distributed them.
That's at the federal level and my comment is based on reports from across the country which were communicated by a highly knowledgable tax professional who makes a good living by delivering tax CPE (continuing professional education) to CPAs. He polls his participants every year on a number of potential audit issues.
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mwcpa
Senior Member
Joined: Jan 7, 2011 6:35:43 GMT -5
Posts: 2,425
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Post by mwcpa on May 1, 2011 12:14:00 GMT -5
beer....my comment about your limited or lack of knowledge of the tax law was based partially on the comment you made, if I misread or read into too much, sorry.. "Sadly I don't know any tax lawyers. I know one accountant that I don't trust to do my own taxes (and who I don't refer any work to.) I need to work on finding some smart tax people"
"The point is that I can compensate myself hourly, at an ABOVE MARKET RATE" ... that's the best coarse of action.... and be sure to document the rate you use...
beer, there is another tax court case you should review, it's hot off the presses, Tony V Robucci v Commissioner, TC Memo 2011-19.... just read a summary of it in the May 2011 "Journal of Accountancy", it goes over some of the things that IRS and the court frowns upon....
" I fully anticipate retaining as much profit as possible"... IRS will (or should) not challenge that for an S corp in regards to FICA and Medicare taxes.... the issue comes up more when profits are distributed....I have personally had this "battle" with IRS agents on more than one occasion, so far none of my clients were pigs and after a discussion the issue went away.... what makes this difficult is that there is no bright line test, it's all subjective...the more you documents up front the better.....
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