undefined | Better HN

0 pointsshwouchk10y ago0 comments

An S-corp is pass through tax entity, you only pay personal income tax on the income.

0 comments

3 comments · 1 top-level

chatmasta10y ago· 2 in thread

That's assuming you pay yourself 100% of the profits, which is not necessarily true. You need to first pay yourself a "reasonable salary" (extremely subjective), and for any profits left in the company after that, you owe corporate income tax. If you want to avoid this, you can elect to file as a C-Corp but then you need to pay payroll tax on your salary.

zrail10y ago

Exactly backwards

S corp:

* reasonable salary

* only pay payroll tax on salary

* all income taxed at personal income rates no matter if distributed or not

* income above salary not subject to additional medicare tax or passive income tax

C corp:

* reasonable salary + bonuses + perks

* remaining income taxed at corporate rates, can remain in business as retained earnings

* distributed non-salary earnings taxed again at personal income rates

Disregarded/partnership LLC

* No salary

* All income taxed at personal income rates

* Simpler to operate + less restrictions than S corp

* Can make sense if you're going to pay yourself more than the Social Security wage base anyway.

jayess10y ago

You have that backwards.

j / k navigate · click thread line to collapse