S-corp

Jan 17, 2018

  1. KINGBICHO
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    KINGBICHO Super Genius

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    hello everyone. I haven't posted in a while ever since the android app for this site stop working. I have a question, I sell final expense and Medicare coverage. I recently incorporated from some propriorship to S Corp. I incorporated beginning of March 2017. Now I'm confused that I have been told I need to w-2 myself and pay myself a salary. Then others told me that I don't have to since all income is pass thru and that I just have to do a schedule k1 . Now some 1099 I will get under my name and others with the corporation name since most medicare business I get paid at beginning of the year. Now I am starting to regret that I incorporated because of the confusion. I live in California. Can anyone help me by answering if I do need to pay myself or just let it pass thru. Now I do have accounted via software of all I have gotten paid and what i have taken as busienss expenses. Is that enough? Help!!
     
  2. LostDollar
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    LostDollar Guru

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    My suggestion would be that you find a full charge bookkeeper type person who has a business writing monthly checks, preparing financial statements and doing income taxes for small businessmen and women. They probably will not charge as much as a CPA but probably should be able to answer your questions and help you organize your recordkeeping and payment processes for both the transition year of 2017 and the full Scorp years starting in 2018.

    (Since you were in both a proprietorship and an SCorp in 2017, and you say you get a lot of your income the first part of the year (When you were still in a 2017 proprietorship) you have a situation that is confusing to describe, explain and understand. You need to sit down with someone who understands both types of organizations, carefully explain your specific situation to them, and then listen to their advice.)
     
    Last edited: Jan 17, 2018
  3. pfg1
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    pfg1 Guru

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    Here is the answer: You need a tax expert in your state, period. Don't go by what anyone online says as the gospel.

    But yes, as an employee of an S-Corp, you would typically get paid a "salary" (and get a W-2) and any profit (or loss) will flow thru to you since you own the corp.
     
    pfg1, Jan 17, 2018
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  4. billyb
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    billyb Guru

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    My CPA set up my corporation in 1995. Saved a ton on Medicaŕe taxes over the years, but now that I am approaching the age that I could receive SS I wish I had paid more in. Whoever set up your corporation should have explained what you need to do. Your commissions should all be deposited into a corprate checking account. You should pay yourself a monthly salary. You should pay taxes on that salary at least quarterly. Some states, like FL, have taxes due from corporations too-FL UC Fund. Just paid my FL corporate fee this week. More to it than what you described you are doing-quarterly 941, year end W2, W3 and a corporate tax ŕeturn.
     
    billyb, Jan 17, 2018
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  5. Todd King
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    Todd King IMO/FMO Owner

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    Addressing the part that I bolded above, you will really want to talk with your tax person before you do this. I'm not sure how, but I'll bet that you wouldn't be eligible for any of the new tax breaks if you dissolve the corp. Once again though, ask a professional to be sure.
     
  6. pfg1
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    pfg1 Guru

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    Paying too little soc sec.....the catch 22 of being self employed and maxing the deductions.
     
    pfg1, Jan 17, 2018
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  7. xrac
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    xrac Guru

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    Not just expenses but dividends from the S-corp that are not subject to FICA. This is one of the items that makes incorporation attractive.
     
    xrac, Jan 17, 2018
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  8. sshafran
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    sshafran Guru

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    This sounds like me a few years ago.

    First and foremost - yes, get a CPA and have someone do your books.

    Now I'm confused that I have been told I need to w-2 myself and pay myself a salary. Yes - this is correct. You don't work for the S-Corp for free, do you? No, you don't. The S-Corp needs to pay you as an employee.

    Then others told me that I don't have to since all income is pass thru and that I just have to do a schedule k1.
    And these people are stupid. Yes, you'll get a K1 - but you are still an employee of the corporation. You're also a shareholder... hence the K1.

    Now some 1099 I will get under my name and others with the corporation name since most medicare business I get paid at beginning of the year. Correct. Because when you sold Jane Smith in January of 2017, the S-Corp did not exist. Why would the S-Corp get commissions for a policy it did not sell? So, yes, the carriers will pay based on the structure at the time.

    The best advice I can give - is what my CPA told me to do. (A) First and foremost, have all carriers pay your new S-Corp's business bank account moving forward, not your personal bank account. (B) Any 1099's issued in the SSN, rather than TIN, send to the CPA so that they can (somehow, I don't quite understand), transfer that money from you to your business. Again, I'm not exactly sure how that part of it works. I do know this: They do the book monthly (P&L) and don't even really ask for my 1099's at the end of the year. I send them over, but I'm not sure if they really need the 1099's as they track every dollar deposited into the bank account (give them access to your online banking).

    I think some carriers will allow you to assign renewal commissions to your agency. Your S-Corp is licensed, right? It should be.

    All new contracts, moving forward, need to be Agent/Agency contracts. You write the business, but the agency gets paid.


    Now I do have accounted via software of all I have gotten paid and what i have taken as busienss expenses. Is that enough? Help!!
    Throw that away. Hire a CPA. Let them run payroll monthly... let them help you determine your starting salary... let them keep the books... let them tell you that you need to send a check in for city taxes - when to send it - where to send it... let them issue you a W2 and K1, let them do your taxes.... let them pay the school tax. You might be able to do everything a CPA can do - but how many sales will you miss out on?

    I even send my CPA an employee expense report monthly that they set up for me. I fill out how many miles the company needs to reimburse me for, etc. I own my car, but as an employee of the S-Corp, when I drive that car for the corp, the S-Corp should write me a little monthly check for reimbursement (it's called an Accountable Plan - and every S-Corp owner should have one). Once I fill out the employee expense report, I write a check from the business to myself, and it's a non-taxable event for me personally (my company just reimbursed me for personal expenses incurred during work), and it's just a business expense for my business.

    The only thing my CPA does not do is this: Pay Distributions. As an S-Corp owner, you'll enjoy paying yourself a nice distribution, on top of your salary, at certain times of the year (when you have a nice little excess...).


    While it's a bit daunting at first, if you do it right and if your S-Corp earns enough income, it'll be well worth it.
     
    sshafran, Jan 18, 2018
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  9. sshafran
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    sshafran Guru

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    Agreed. Unless the earnings are too low to justify the extra expenses of the S-Corp (i.e., CPA/Payroll services), it would be silly to miss out on the advantages of the S-Corp, which just got better.
     
    sshafran, Jan 18, 2018
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  10. Todd King
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    Todd King IMO/FMO Owner

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    You actually do understand what that is. It is actual proof that you CAN do a pass-thru with an S corp. Not the cleanest way to do it (which is why your CPA said not to do it).
     
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