Posted by randyOH on July 22, 2004 at 18:49:44:
“Although, your opinion does conflict with the others who stated that income tax and social security were due regardless of whether any actual distributions took place.”
Income tax, yes. SS tax, no. SS tax is only due on wages paid. No wages, no SS tax.
I don’t see any conflict with the other postings. Show me.
Separate knucklehead question… - Posted by JP(SC)
Posted by JP(SC) on July 17, 2004 at 07:41:36:
Suppose my S-Corp makes 100,000 this year. I decide not to take any salary and leave the money in the company. I report the income on my personal return, pay the taxes, etc. Next year the S-Corp has no income but I decide I want to pay myself a salary consisting of whatever cash is available in the company. I now have to report my salary on my income tax return and pay tax on it at my individual rate. Is this income not being taxed twice, in two separate years?
Re: Separate knucklehead question… - Posted by Dave T
Posted by Dave T on July 19, 2004 at 20:43:50:
As I understand it, an S-Corp is a flow through entity. The S-Corp does not retain earnings, but rather all earning pass through to your personal 1040 as self-employment income (a salary). This self-employment income is also subject to self-employment income taxes (what those with a job see as Social Security and Medicare withholdings from their gross pay) in addition to your ordinary income taxes.
You can reduce your self-employment income tax somewhat by having the company “pay” you a reasonable salary, then declare the rest of the income as a dividend. You still pay ordinary income tax on your salary and dividend, but the dividend is not subject to self-employment income taxes.
Try to declare all of the earnings as a dividend and the IRS will recharacterize it all as self-employment income.
I am not a tax specialist, and the above is just my opinion. Consult a corporate tax professional for specific details.
Maybe I can answer my own question - Posted by JP(SC)
Posted by JP(SC) on July 18, 2004 at 17:56:56:
By paying me a salary in a year where there is no income, the company would report a loss equivalent to the salary, which would pass through to my individual return and effectively cancel out my income. Viola! No tax due!
Am I close?
Why would you report income in year 2? - Posted by Max in OH
Posted by Max in OH on July 17, 2004 at 13:39:34:
This is confusing. S-Corp makes no income, there’s nothing to report. An S-Corp doesn’t “pay you a salary” - net income simply flows through to you.
Re: Separate knucklehead question… - Posted by JP(SC)
Posted by JP(SC) on July 17, 2004 at 07:46:00:
By the way, I asked both of these question to a local CPA who just gave me a blank stare, said he would have to look it up, and then never called me back.
I think I need to see a different accountant.
Thanks - Posted by JP(SC)
Posted by JP(SC) on July 20, 2004 at 06:34:02:
Looks like I was way off. Thanks for your help.
Correct, except… - Posted by randyOH
Posted by randyOH on July 21, 2004 at 17:43:33:
…the salary would be subject to social security tax.
Well this is interesting… - Posted by JP(SC)
Posted by JP(SC) on July 18, 2004 at 15:57:01:
I was under the impression that the income in an S-Corp “flows” onto your personal tax return for tax purposes. I didn’t think that it meant that the money was actually flowing into your personal checking account as well.
Now I’m really confused.
Re: Correct, except… - Posted by JP(SC)
Posted by JP(SC) on July 22, 2004 at 18:03:44:
Of course, you are correct!
Although, your opinion does conflict with the others who stated that income tax and social security were due regardless of whether any actual distributions took place.