Quote:
Originally posted by Amputate Your Head
This looks appealing, however, if we are going to do the pass-through to the individual to avoid getting double taxed, then the corp doesn't pay tax and the individual pays personal income tax.... at the individual rate, not the corporate rate.... so for a solo guy, I still don't see this as a benefit.
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Amp... as a sole proprietorship.. all income gets taxes as personal income along with payroll taxes on 100% of it. That's over 13% in social security and medicare taxes via self-employment taxes. Also you can't deduct a fullblown retirement plan or costs of a healthcare plan. As an S-corp (so that I can speak from experience), I first off pay myself a salary..that caps my liability for social security and medicare taxes (remember the medicare portion has no upper limit while the social security tax does). The rest of the net income that passes through to me is not subject to employment taxes, just personal income tax.
Say for round numbers your sole proprietership nets $1,000,000. You would owe 12.4% of $84,900 and 2.9% of the full $1,000,000. That's medicare taxes of $29,000.00 and social security taxes of $10,527.60 on Schedule 1040SE. Now as an S-Corp, say you show a gross salary (for round numbers again) of $100,000. The corp takes a hit on net income for the employer portion of the Federal employment taxes (6.2% of $84,900 and 1.45% of $100,000 or $5263.80 and $1,450.00 respectively). The other half comes from the net of your 'salary check' but the big difference is that instead of paying 2.9% on the entire 'net income' of the sole proprietorship ($29,000) for Medicare, you're paying 2.9% total on the $100,000 salary you paid yourself ($2,900). Effectively saving yourself $26,100.
Also in the above example, the net income passed through to the individual from the corp would be $1,000,000 - $100,000 - $6,713.80 or $893,286.20. You still catch the $100,000 salary on your personal return, but not the $6,713.80 or all of the dang self-employment taxes.
No one can tell I'm wired tonight can they? Took my boys to see Aerosmith and Kid Rock.. I have no voice and I can't hear.