S or LLC Corporation?

[Sales71]

Easy question., ask your CPA better than a group of unkown guys giving you advice about your future tax situation it might be the biggest decision you will ever make...(:-

 

[Franz Kafka]

I concur. You can pay yourself a reasonable base salary. Say $30,000-$35,000 and then pay yourself any excess commissions exceeding that amount as dividends. The advantage is that the dividends are not subject to FICA and Medicare taxes. This can effectively save you 15% in taxes on a portion of your earnings.

Emphasis is on "reasonable". If you're making $150-200k and paying yourself only $30-35k, an audit is just a matter of time.

 

[VolAgent]

Emphasis is on "reasonable". If you're making $150-200k and paying yourself only $30-35k, an audit is just a matter of time.

Exactly my point.

 

[xrac]

What can you deduct as a S-Corp that you can't deduct on your schedule C as a sole prop?

Honestly, I use to do my own taxes but haven't in years so I do not remember all of the stuff. It seems to me that there was some advanatge but I may be wrong. Talk to a good CPA.
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Emphasis is on "reasonable". If you're making $150-200k and paying yourself only $30-35k, an audit is just a matter of time.

But if you are making $150-200K and pay youself a salary of say $50,000-$60,000 and a bonus of $50,000 you can keep the other as retained earnings for future business growth. It is done all the time. Talk to a good CPA.

It was not in insurance but one year I had a business profit of over $120,000 not counting my salary of $30,000. The money was kept in the businss for future growth. That was about 1995 and at that time $30,000 was not an unreasonable salary. We have always operated like that and it never generated an audit. We did get audited once but that part of things did not create any trouble.

 

[padthaiforlunch]

Audit rates:

Schedule C, sole prop or single member llc: 4%
S-Corp: 1/10 of 1%

Reasonable salary: several ways to interpret. One is to use BLS for avg. wage of insurance agents/brokers in your area. Really bringing in the income? Use the upper end of the range.

 

[Sales71]

Audit rates:

Schedule C, sole prop or single member llc: 4%
S-Corp: 1/10 of 1%

Reasonable salary: several ways to interpret. One is to use BLS for avg. wage of insurance agents/brokers in your area. Really bringing in the income? Use the upper end of the range.

Good point. I got audited once 2008 and then he asked for 2009. Found nothing. 2010 I did an s-Corp. And now my CPA does my bookkeeping as well it worth it less stress for me. Solo prop is easy with the books but s- Corp u need to have a accounting.

 

[Franz Kafka]

But if you are making $150-200K and pay youself a salary of say $50,000-$60,000 and a bonus of $50,000 you can keep the other as retained earnings for future business growth. It is done all the time. Talk to a good CPA.

It was not in insurance but one year I had a business profit of over $120,000 not counting my salary of $30,000. The money was kept in the businss for future growth. That was about 1995 and at that time $30,000 was not an unreasonable salary. We have always operated like that and it never generated an audit. We did get audited once but that part of things did not create any trouble.

I'm just quoting what I had heard from my CPA (don't know how good he is but he is conservative). In the first case, you would pay FICA on $100K (salary and bonus) and not on 50K (dividend). That would be very reasonable. In the second case, you paid FICA on $30K but didn't pay FICA on $120K. That would definitely not fly with him. You still pay income taxes on retained earnings for pass through entities so it would have been the same as if you had paid yourself a $120K dividend. Please correct me if I've missed something.

 

[VolAgent]

Audit rates:

Schedule C, sole prop or single member llc: 4%
S-Corp: 1/10 of 1%

Reasonable salary: several ways to interpret. One is to use BLS for avg. wage of insurance agents/brokers in your area. Really bringing in the income? Use the upper end of the range.

I bet one of the keys is being professionally prepared. Something tells me a professionally prepared return gets audited much less than a self-prepared return. Take out that factor, and I imagine the numbers would be much closer.

 

[xrac]

I bet one of the keys is being professionally prepared. Something tells me a professionally prepared return gets audited much less than a self-prepared return. Take out that factor, and I imagine the numbers would be much closer.

Talk to a good CPA.

 

[padthaiforlunch]

I bet one of the keys is being professionally prepared. Something tells me a professionally prepared return gets audited much less than a self-prepared return. Take out that factor, and I imagine the numbers would be much closer.

Nah. More resources are thrown at Shed C returns. Those folks are more likely to under report income. S-corp takes more work to keep it compliant, and the 1120s is a combined P&L and balance sheet. But yeah, good luck preparing an S-corp return on your own unless you're a tax pro.