Pay myself draw or dividend? Retirement plan? (proprietorship, small business, corporation)

[Fedupwiththis]

My wife and I work full time but I have a little drop ship business on the side. I started the business early this year, it’ll prob end up doing $20,000-$30,000 in profit.

Because I work full time, I don’t need a regular salary from the business, I’m looking to minimize the amount of taxes I need to pay. If I can put the money toward some business based retirement plan all the better.

I’m sure I’ll get an accountant but I’m looking for insight so I can be better informed when I speak to the accountant.

[mathjak107]

there are tax laws regarding what you can do so as not to escape payroll taxes . check with a tax adviser

[Fedupwiththis]

I’m not saying I want to break the law my Any means, just want to explore all options

[mathjak107]

there are definite requirements you have to meet before you can draw income as dividends and escape fica . basically you have to pay yourself what the market wage would be if you had to hire someone . there is more that goes with that .

[KaraG]

Do you have it set up as a sole proprietorship? Filing a Schedule C? Whatever net profit you show just goes on your personal tax return and your self employment tax will be calculated. That's the easiest, no need for draws or dividends.

It really doesn't have to be complicated. You can set up retirement accounts to reduce your total taxable income from all sources.

Now if it's a corporation or LLC, that's a more complicated can of worms. I wouldn't think it would be worth it for such a small business.

[Fedupwiththis]

It is an LLC registered as a sole proprietorship. I already had the LLC for a different purpose that is a very long story so I built it off that. Seems like the takeaway is just utilize standard deductions that come with owning a business and your typical 401k..