In order to participate in the GunBroker Member forums, you must be logged in with your GunBroker.com account. Click the sign-in button at the top right of the forums page to get connected.
Tax question for you self-employed guys
cbxjeff
Member Posts: 17,624 ✭✭✭✭
I've been an employee since 1962 and that's going to end 12-31-12. I plan on forming a LLC and doing design work as an independant consultant. I know that my previous employeer pays some of my SS and Medicare tax. How much can I expect to pay in taxes (not income tax)? I'm trying to come up with a reasonable pay rate.
Thanks guys,
Thanks guys,
It's too late for me, save yourself.
Comments
Self employed folks pay exactly double the employee rate for SS.
Neal
Just my 2 cents.[:)]
Regardless, the best answer to your questions is "ask your CPA." A good one is worth the few hundred dollars you will pay them, particularly if you have multiple investments/real estate holdings/retirement funds/ etc.
http://www.irs.gov/pub/irs-pdf/f1040sc.pdf
and Schedule SE:
http://www.irs.gov/pub/irs-pdf/f1040sse.pdf
Self employment has loads of deductions to it you never had as an employee.
You will pay withholding just as before, except you will be deducting and paying yourself.
You will pay BOTH shares of SS/MC as both employer, and employee.
I have to pay Corp filing fees each year, as well as State and Federal UCT tax,....unemployment. Yes, you get to pay it on yourself, but you can't collect if you shut your business down. What a deal![;)]
What most corporate officers do concerning their own pay is to pick an amount that reflects the going rate in your area for what you are doing.
You will write yourself a check weekly/monthly,.....however you choose, and pay the taxes I mentioned above.
I make my 941 deposits through EFTPS on a monthly basis, and file a 941 quarterly as well.
After you have accumulated some 'profit' in your account, you then write yourself a check for a 'bonus' per se. It's actually considered a shareholder disbursement from the Corporation.
All you pay on that is withholding tax,......no SS/MC.
Some people do it other ways to save on taxes, but if you are not paying yourself at least the going rate for what you are doing, you can find your butt in a sling quickly.
Let's use my trade as an example.
Around this area an HVAC tech that has a broad base of knowledge will typically get paid between 20 to 25 bucks an hour.
This is basically my job description, and is how I pay myself monthly.
Since I charge 90 bucks an hour, and have little overhead anymore since I sold off the majority of my business, I simply take a disbursement every 3 or 4 months for whatever excess cash I have.
Be sure to not draw things down so much that you do not post a profit at the end of the fiscal year.
You can only post a loss for so many years before they look at your business as a 'hobby' and a tax dodge.
PS: It's also a red flag for an audit.[:)]
The IRS does expect to see shareholder compensation (W-2) at an equitable rate for someone else in your position. As Marc said, on that part, one would withhold the social security/medicare tax along with the federal and state withholding and remit to the federal and state governments. The amount of income left (not necessarily the monies distributed) is taxed to the shareholders on income tax only.
Example: ABC S-corp has income after officer compensation ($30k) of $50k. Assuming the officer and shareholder is the same, the shareholder would report a $30k W-2 and $50k of Sub-s income on which you would only pay the income tax. One very important thing to remember is this - the $50k is just a distribution of the monies earned. Whether you pull it out or not has absolutely no bearing on the amounts of taxes you pay.
Example: ABC LLC has income of $80k of which you have taken cash out of $30k. You will pay both income tax and self-employment tax on the entire $80k. Again as above, it makes no difference how much you have taken out, you pay taxes on what the business earned ($80k).
Currently the self-employment rate is 13.3%. Most states have a franchise tax that both Corporations and LLC's have to pay. In Arkansas, it is $150 minimum annually.
Basically the tax difference between a LLC and a S-corp is the self-employment tax. The net income from an LLC is taxed for both income tax and self-employmeent tax. The net income from a S-corp is taxed only for income tax.
The IRS does expect to see shareholder compensation (W-2) at an equitable rate for someone else in your position. As Marc said, on that part, one would withhold the social security/medicare tax along with the federal and state withholding and remit to the federal and state governments. The amount of income left (not necessarily the monies distributed) is taxed to the shareholders on income tax only.
Example: ABC S-corp has income after officer compensation ($30k) of $50k. Assuming the officer and shareholder is the same, the shareholder would report a $30k W-2 and $50k of Sub-s income on which you would only pay the income tax. One very important thing to remember is this - the $50k is just a distribution of the monies earned. Whether you pull it out or not has absolutely no bearing on the amounts of taxes you pay. Example: ABC LLC has income of $80k of which you have taken cash out of $30k. You will pay both income tax and self-employment tax on the entire $80k. Again as above, it makes no difference how much you have taken out, you pay taxes on what the business earned ($80k).
Currently the self-employment rate is 13.3%. Most states have a franchise tax that both Corporations and LLC's have to pay. In Arkansas, it is $150 minimum annually.
Yep,...reported on your Corporate 1120-S and K-1.
That is transferred to your personal income tax return, and that is where you pay the withholding.
I still remember when I first went into business asking my accountant why I was paying tax on money I didn't receive. Heck it was still in the business account for the purpose of going forward the next fiscal year.[:)]
Simple answer is you will be 'had' either way you go.