Solo Agent: Sole Propietor, Corporation, or LLC?
- Thread starter MW Agent
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- #12
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I agree with getting the tax deduction upfront when your timeframe is more limited and your tax bracket is higher. Just to clear any confusion (maybe I'm misreading your post), the SEP contribution goes in pre-tax, it's taxed as ordinary income when you withdraw it.
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Myself personally, no. Are you suggesting the W-2 number is too low in proportion to the total income?
I've always had a question. How do you determine what is really within reason between allocating what goes between w-2 salary and distributions? Also something that hasn't been mentioned is if you "net" more than $80-$90k than the very little you save on fica (up to $118k) isn't worth the trouble of setting all this up.
- 648
I had to go through 3 CPA's before I found a good one! I changed LLC w/ S Corp selection... Has worked out great!
Yep, I'm LLC with S Corp. Has worked well. Although I'm not seeing any benefit any longer on FICA. My CPA prefers I do a 50/50 split on salary and distributions. He says there's no "rule" on this, he just doesn't want to raise any red flags. With that said, he said he has some clients (different profession) who do in the neighborhood of a 25/75 split. If I could do that it would save me money on FICA taxes.
- 648
I do a 25k base and then distribution for the FICA. Don't kinks me, it has been great so far!
I don't know how to "kinks" you.
I guess that works out to "reasonable compensation" for the average insurance agent...lol.
Seriously, that seems pretty low. I'm assuming that your accountant is comfortable with that?
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- #19
- 122
As of others have stated, there is not real IRS rule of thumb that has been given. There is actually a pay service that I have the ability to use for clients that divides all the different tasks they do (selling, keeping the books, admin, janitorial, ect) by percentage of time and geography, then it kicks back a reasonable compensation based on the mix. It's proven to hold up well in audits.
There are other ways to do it. Here are some of the more common I see in our industry:
1. Many accountants use the 50% to 60% of net income number to target W-2 pay.
2. Another way to go about it is to look up the median pay number for a profession. For example, an insurance agent is listed as $48,210 according to the Bureu of Labor Statistics.
3. One way I am a fan of is to base it on compensation received. Find a pay scale for a restrictive captive outfit and pay yourself a W-2 based on that amount. NML is roughly 50% payout. What amout World Financial Group or some of the other bottom feeders, 35% to 40%.
If you get audited, the IRS wants to see some justification for the W-2 amount you choose.
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Agent Tax Blog
Be aware there is an offer on the site if you view the full webpage version (not trying to spam the forum). It's just getting up and running. I enjoy posting and plan to do so at least once per week, I think people will find it helpful. If I pull a few clients out of it, even better.
- 648
When I was captive, I had a 21k base making over 100k... That company is now doing 25k base for new hires.
I think it is reasonable.
