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i would imagine this would be something that may raise some red flags at the irs if your salary is reduced to low.. its almost on par with trying to take as little salary as possible and passing it through as a dividend to avoid all the payroll taxes.
irs basically says your drawn salary has to be what you would pay what someone else would get if they worked for you or a competitor...
The way it works is that you pay yourself for the position you work in your company... if you take a position in the company (you could just opt to be an owner only, but that's unlikely unless it's a partnership).
So if I'm the owner of a company with a cashflow of $150k, but play the role of project manager, and project managers W2 salaries are only around $60,000, I can pay myself just that. Then take the rest in profits (after employer contribution to 401k, ofcourse.
Ownership in itself does not require a designated salary.
The IRS is fully aware of this strategy and they don't care. They leave it in to offer benefits to business owners.
The way it works is that you pay yourself for the position you work in your company... if you take a position in the company (you could just opt to be an owner only, but that's unlikely unless it's a partnership).
So if I'm the owner of a company with a cashflow of $150k, but play the role of project manager, and project managers W2 salaries are only around $60,000, I can pay myself just that. Then take the rest in profits (after employer contribution to 401k, ofcourse.
Ownership in itself does not require a designated salary.
The IRS is fully aware of this strategy and they don't care. They leave it in to offer benefits to business owners.
I actually do the same thing. Pay myself a minimum salary, max out the 401K, and also have the corporation pay off a personal loan from me at a competitive interest rate along with writing off other legitimate business expenses. All totally legal with the IRS and administered by my accountant. These are the perks that attracted me to self-employment and the "loopholes" that others complain about. But they give you the incentive to risk going into business for yourself which is seldom an easy endeavor.
The way it works is that you pay yourself for the position you work in your company... if you take a position in the company (you could just opt to be an owner only, but that's unlikely unless it's a partnership).
So if I'm the owner of a company with a cashflow of $150k, but play the role of project manager, and project managers W2 salaries are only around $60,000, I can pay myself just that. Then take the rest in profits (after employer contribution to 401k, ofcourse.
Ownership in itself does not require a designated salary.
The IRS is fully aware of this strategy and they don't care. They leave it in to offer benefits to business owners.
interesting tangent to this would be....if this is true, why does everyone cry foul so loudly about raising taxes on those making >$250k/yr as to how it would kill small business owners? kinda funny. maybe they all need to talk to you and learn how to properly manage their books so they can avoid taxes (legally) just as you do and they can stop with the falsehoods? anyways...that's a different thread.
interesting tangent to this would be....if this is true, why does everyone cry foul so loudly about raising taxes on those making >$250k/yr as to how it would kill small business owners? kinda funny. maybe they all need to talk to you and learn how to properly manage their books so they can avoid taxes (legally) just as you do and they can stop with the falsehoods? anyways...that's a different thread.
I don't think raising income taxes would kill small business owners making >$250K as they are often making the money through vehicles other than "income". They would find the work-arounds (shelters) to tax increases. The thing that hurts owners (and workers) is rising health insurance costs. But again, that's another thread...
interesting tangent to this would be....if this is true, why does everyone cry foul so loudly about raising taxes on those making >$250k/yr as to how it would kill small business owners? kinda funny. maybe they all need to talk to you and learn how to properly manage their books so they can avoid taxes (legally) just as you do and they can stop with the falsehoods? anyways...that's a different thread.
There's a point where a small business reaches a certain maturity where the dynamics change. Additionally, my complaint is that $250k is too low for the barrier. It should be raised to $500k or something.
I have to lot of so called middle class in American really can't afford that lifestyle. I think you need make over $100k+, even in an cheaper place like Dallas. For expensive areas, like NYC, you might need like $500k a year! Most people in middle class would should be called the "working class" instead. The middle class lifestyle has many expenses (listed below) and it can get expensive.
Here is what I think most people consider a middle class lifestyle:
-Retire with same lifestyle as pre-retirement
-1-2 years worth of spending money in cash
-Enough money to buy a nice single family house (McMansion)
-Be able afford to put kids through university
-Money to buy new cars every 3-5 years
-Afford nice vacations each year (probably $10k+)
-Money to buy latest smartphone every 2 years,computers, and other electronics
The excepted middle class lifestyle is NOT really frugal. When you look at this list, you can tell how expensive it can get. Being able to spend a lot of your money while still saving for retirement requires a high income.
A lot of people living this lifestyle on has no retirement saving and/or tons of debts. These people are really working class can't / shouldn't try to go for this lifestyle. Of course people making less than $100K (like me) can save for retirement by living more frugal lifestyle. However, you will definitely miss many middle class niceties like brand new cars every few years!
I don't think raising income taxes would kill small business owners making >$250K as they are often making the money through vehicles other than "income". They would find the work-arounds (shelters) to tax increases. The thing that hurts owners (and workers) is rising health insurance costs. But again, that's another thread...
yeah, i agree. but when they discussed letting the tax cuts expire, both sides offered skewed statistics as to how it would affect SBOs.
There's a point where a small business reaches a certain maturity where the dynamics change. Additionally, my complaint is that $250k is too low for the barrier. It should be raised to $500k or something.
well, you and i are going based on NY area incomes...so yeah, i think $250 is too low, but $250 in most of the country is a lot (except to the OP of this thread i guess).
My example was fairly accurate for a typical private individual who has to pay for his own insurance out of pocket and has 100k of taxable income. It varies widely from state to state of course. 3% prop tax would be , for example, in Texas, but no state income tax. 1% would be closer in Colorado, but there you do have state income tax. My example was a homogenized ballpark example.
Your example was no where near accurate! Even with just your typical deductions an individual making $100k is going to pay noticeably less than $35k in federal taxes. I don't even know where you got that number....
Also, to say it again, I have private insurance and my premium is $140/month, if you want to include HSA contributions then its around $300/month, dramatically lower than $1,000. I'm also paying 30% more on my premiums due to a pre-existing condition.
speaking of close to being accurate what tax system are you on? 16k federal on 100k income. ????????????? .... tax on 100k for a single filer less the standard deduction and 1 exemption is roughly 20k federal and about 5k state and local here in nyc. with fica i get 32k ..
Right, $16k federal. I'm assuming modest contributions to a 401(k), a modest mortgage, etc. Taxable income should be around $75~$80k and your total tax will be $15k~$16k.
Quote:
Originally Posted by mathjak107
140 a month sounds like its a medicaid type plan like healthy new york or its a college plan with minimal coverage if its on your own. if its through a company its subsidized and thats why its 140 a month..
Nope, its a private policy via Anthem Blue here in California. Its a HSA compatible plan with a $3,000 deductible. The premium would actually be cheaper if I didn't have a pre-existing condition.
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