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Old 11-26-2018, 04:38 PM
 
Location: Kansas/China
4,640 posts, read 2,379,132 times
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Quote:
Originally Posted by Japanfan1986 View Post
I will have to look more into that as that could become a possibility. By profit do you mean net profit or gross profit?
Net. For most dicussions gross profit isnt that useful.
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Old 11-26-2018, 10:42 PM
 
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Quote:
Originally Posted by Mattks View Post
They are taxed differently then income tax, at a lower rate then income tax. Corporate tax rates are much lower then income tax rates.

Rather then just saying incorrect, feel free to add any corrections necessary.
What is the “corporate tax rate” for an S Corp? How much lower than the “income tax rate” is it?
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Old 11-26-2018, 10:51 PM
 
Location: Kansas/China
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Quote:
Originally Posted by TaxPhd View Post
What is the “corporate tax rate” for an S Corp? How much lower than the “income tax rate” is it?
Corporate tax rate for 2018 is 20%. Income tax rates range from 10-39.6%. There are many variables for the progressive income tax rates.

How was my original statement incorrect?
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Old 11-26-2018, 11:38 PM
 
5,304 posts, read 2,445,308 times
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Quote:
Originally Posted by Mattks View Post
Corporate tax rate for 2018 is 20%. Income tax rates range from 10-39.6%. There are many variables for the progressive income tax rates.

How was my original statement incorrect?
Study up a bit, before you embarrass yourself any more. It’s pretty clear that you don’t understand S-Corp taxation. I’m feeling charitable (it is the holiday season, after all) and I don’t really want to make you look any more foolish.
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Old 11-27-2018, 01:18 AM
 
Location: Kansas/China
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Quote:
Originally Posted by TaxPhd View Post
Study up a bit, before you embarrass yourself any more. It’s pretty clear that you don’t understand S-Corp taxation. I’m feeling charitable (it is the holiday season, after all) and I don’t really want to make you look any more foolish.
Again, feel free to correct me. I have a S-Corp with a restaurant LLC, a wine export company, and multiple rental properties also as LLCs in it. I have no income tax on profits that are not my salary. I can reinvest those profits into my businesses at a lower tax rate. My income is "double taxed" and Im guessing that is what you are trying to get at, but only being vague and looking like a jerk while doing so. But, I dont have to pay much salary at all, so again, I ask a third and final time, how was I wrong? I am not an accountant and I dont feel foolish to be wrong, but I'd feel a fool to call myself a tax phd and not offer a correction when asked. I would legitimately like to know where I am wrong.

Edit: I also forgot to mention the ability to use dividends as a way to pay oneself, which there are ways to drastically reduce tax rates.
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Old 11-27-2018, 05:43 AM
 
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"The big benefit of S-corp taxation is that S-corporation shareholders do not have to pay self-employment tax on their share of the business’s profits. The big catch is that before there can be any profits, each owner who also works as an employee must be paid a “reasonable” amount of compensation (e.g., salary). This salary will of course be subject to Social Security and Medicare taxes to be paid half by the employee and half by the corporation."
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Old 11-27-2018, 07:27 AM
 
Location: Kansas/China
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Quote:
Originally Posted by mathjak107 View Post
"The big benefit of S-corp taxation is that S-corporation shareholders do not have to pay self-employment tax on their share of the business’s profits. The big catch is that before there can be any profits, each owner who also works as an employee must be paid a “reasonable” amount of compensation (e.g., salary). This salary will of course be subject to Social Security and Medicare taxes to be paid half by the employee and half by the corporation."
Thanks for the reply. Reasonable salary is quite vague, and according to my tax returns my salary is not high, dividends are a sizable percentage of my personal income. Most people who own businesses understand that businesses owners do no need high salaries for many reasons. Benefits from having a business seep through. Its just like using a 1031 to roll rental properties into more valuable properties, tax free ( or tax deferred if you really prefer).

A nice little example of a benefit is I can buy myself a car and that lowers my profit, any money I spend on said car is not taxed and can be used as a tax deduction as well. Actually, any business that files a schedule C can do that, just a benefit of having a business.
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Old 11-27-2018, 10:51 AM
 
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Quote:
Originally Posted by Mattks View Post
I think the question you are really wanting to ask is when should you switch to a S-Corp. A LLC is not necessary for all businesses and has the main purpose for protecting one from liability and risk. If you are selling small amounts of stuff online, there is no need for a LLC. If you have rental properties, then a LLC might be a good idea.

S-Corps can protect profits from being taxed and one will only pay income taxes on your salary. I've heard different opinions, but most don't recommend a S-Corp until you are making a minimum of $40K a year in profits. There are other instances when a S-corp can make sense, even if one makes less the $40K a year in profit, but I'd say that is mostly when dealing with high liability and partners. S-corps offer the same liability protection as a LLC.
mathjak107 addressed this. An s-corp owner will only pay self employment tax on their salary, not the total income from the business.

Quote:
Originally Posted by Mattks View Post
They are taxed differently then income tax, at a lower rate then income tax. Corporate tax rates are much lower then income tax rates.

Rather then just saying incorrect, feel free to add any corrections necessary.

You seem to be making a distinction between "income tax" and "corporate tax." However, it's all income tax. Income tax is paid by corporations and individuals, but at different rates with different rules. But in the case of an S-corp, an S is not a tax paying entity. It is a pass-through entity, where all of the income passes through to the owners, and they pay the tax on their individual tax return, at individual rates. None of the profit is "protected" from tax.

Quote:
Originally Posted by Mattks View Post
Again, feel free to correct me. I have a S-Corp with a restaurant LLC, a wine export company, and multiple rental properties also as LLCs in it. I have no income tax on profits that are not my salary.
Again, you will have no self-employment tax on non-salary profit, but you will pay income tax on that.

Quote:
I can reinvest those profits into my businesses at a lower tax rate.
How? The income from the business is fully taxed to you at your individual rate. There is no "lower rate" if you re-invest the money into the business.

Quote:
My income is "double taxed" and Im guessing that is what you are trying to get at, but only being vague and looking like a jerk while doing so.
It's not double taxed. One of the primary benefits of an S-corp is that it avoids the double taxation inherent with a C-corp.

Quote:
But, I dont have to pay much salary at all, so again, I ask a third and final time, how was I wrong? I am not an accountant and I dont feel foolish to be wrong, but I'd feel a fool to call myself a tax phd and not offer a correction when asked. I would legitimately like to know where I am wrong.

Edit: I also forgot to mention the ability to use dividends as a way to pay oneself, which there are ways to drastically reduce tax rates.
An S-corp doesn't have dividends (unless it has accumulated earnings from prior C-corp status, a situation that is quite rare with typical small businesses). All income from the S-corp is fully taxable to the owner(s), at regular individual rates, rather than at preferential dividend rates.
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Old 11-27-2018, 11:39 AM
 
Location: Kansas/China
4,640 posts, read 2,379,132 times
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Quote:
Originally Posted by TaxPhd View Post
mathjak107 addressed this. An s-corp owner will only pay self employment tax on their salary, not the total income from the business.




You seem to be making a distinction between "income tax" and "corporate tax." However, it's all income tax. Income tax is paid by corporations and individuals, but at different rates with different rules. But in the case of an S-corp, an S is not a tax paying entity. It is a pass-through entity, where all of the income passes through to the owners, and they pay the tax on their individual tax return, at individual rates. None of the profit is "protected" from tax.



Again, you will have no self-employment tax on non-salary profit, but you will pay income tax on that.

How? The income from the business is fully taxed to you at your individual rate. There is no "lower rate" if you re-invest the money into the business.

It's not double taxed. One of the primary benefits of an S-corp is that it avoids the double taxation inherent with a C-corp.

An S-corp doesn't have dividends (unless it has accumulated earnings from prior C-corp status, a situation that is quite rare with typical small businesses). All income from the S-corp is fully taxable to the owner(s), at regular individual rates, rather than at preferential dividend rates.
Thanks for the reply, and not even rude, how about that, perhaps you are deserving of your title.

If money is reinvested into a business, it is just a tax deductible expense, the "lower rate" was a poor wording, again not an accountant.

S-Corps pay out distributions, not dividends, which are exempt from payroll taxes (up to a certain point), which is SS plus Medicare if I remember correctly, close to 9-10%, which is a significant savings.
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Old 11-27-2018, 06:34 PM
 
15,881 posts, read 3,245,054 times
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I have a LLC....I dont make much money on it now.I have a LLC cuz its in a extremely high risk industry.So for me it wasnt the money but rather the risk.I dont know if it would make sense in your situation but it did for me.
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