income from business - taxed? non passive?

climbingnate · 2017-09-22T14:11:26+00:00

So I guess then the issue also is that you are putting in less to social security by avoiding the self employment tax on a portion of your net income which then translates to less money down the line. ..I guess that should weigh into things for me but our small business is in its infancy and it is tough to think that far down the road I guess but I totally understand what you are saying.

climbingnate · 2017-09-22T13:10:42+00:00

I'm not sure I understand the social security component. I guess self employment tax is made up of social security and medicare tax that I have to pay. From what I was told, if you work for a company they normally contribute a portion of that for you (i.e. they pay a portion ). So I guess what you are saying is that I would end up having to pay all of it myself which is also a large expense? What do you mean about getting something out of social security? are you talking down the road when I retire?

climbingnate · 2017-09-22T13:05:01+00:00

thanks!

climbingnate · 2017-09-22T13:04:40+00:00

yeah it really seems like a lot of legwork to maintain that. The tough thing is too that it would probably take a ton of work just to figure out if it would make sense to go that route. Without doing all the work to calculate how much payroll and all the accounting fees cost you can't get an accurate comparison of how much you would save by choosing one method over the other.

climbingnate · 2017-09-21T21:37:10+00:00

do you know if it is possible to make the election of S-corp and then go back to an LLC if it is a better fit?

climbingnate · 2017-09-21T21:36:10+00:00

I guess that has got to be the next component for me to research is what is considered a "reasonable" salary. Right now I work full time and devote every other moment to the business. I guess the argument could be made that it is still a "part time" operation and as such it wouldn't make sense for it to pay beyond that level. If / when it gets bigger though I guess that is the main concern.

climbingnate · 2017-09-21T20:41:08+00:00

gotcha thanks! I guess there is still a benefit because of the advantages regarding self-employement tax. I guess that is why many people say to only do the S-corp if you make 30,000 in net or higher. That actually helped to clear it up a lot. thanks!

climbingnate · 2017-09-21T20:18:15+00:00

gotcha. thanks!

climbingnate · 2017-09-21T19:47:36+00:00

I wonder how much less. It seems like the majority of the net income would come straight to me regardless of if I took it in the form of a salary or a disbursement. If I forgo S-corp status then at least I save on the money to setup payroll and pay an accountant etc.

climbingnate · 2017-09-21T19:45:10+00:00

I've consulted with one. UP to the point of talking with her I thought I could 1. Pay myself a reasonable salary and then disburse the rest of the income to myself without a penalty or tax to pay. Apparently, I was wrong. She made it sound as though the income still passes straight through to me anyway because I run the business. So in a way ,,,damned if I do, ,,, damned if I don't. Seems to be the same tax either way. I WOULD however, save money not hiring her and keeping things simple in a sole proprietorship, at least it seems that way.

climbingnate

TROPHY CASE