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R R
Guest
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 Posted: Fri Apr 25, 2008 3:34 am Post subject: Sub Chap. S |
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My current CPA says if I form a sub chap S corp I can avoid Social
securty and medicare taxes altogether... Is this true? What can I expect
to pay to form an S corp if I do? And do they charge more to file an S
return..?
THanks.. |
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Phil Marti
Guest
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| Posted: Fri Apr 25, 2008 4:41 am Post subject: Re: Sub Chap. S |
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"R R" wrote:
| Quote: |
My current CPA says if I form a sub chap S corp I can avoid Social
securty and medicare taxes altogether... Is this true?
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What would be the source of the corporation's income?
--
Phil Marti
Clarksburg, MD |
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Taylor
Guest
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| Posted: Fri Apr 25, 2008 7:01 pm Post subject: Re: Sub Chap. S |
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"R R" <client7@webtv.net> wrote in message
news:10648-48110AE4-216@storefull-3276.bay.webtv.net...
| Quote: |
My current CPA says if I form a sub chap S corp I can avoid Social
securty and medicare taxes altogether... Is this true? What can I expect
to pay to form an S corp if I do? And do they charge more to file an S
return..?
THanks..
|
A subchapter S corp is a pass-through tax entity, which means you report the
tax as an individual. It is not a payroll, so you do not pay SS and Med
tax, but you do pay Self employment tax, which is basically the same thing. |
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Phil Marti
Guest
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| Posted: Fri Apr 25, 2008 7:51 pm Post subject: Re: Sub Chap. S |
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"Taylor" wrote:
| Quote: |
My current CPA says if I form a sub chap S corp I can avoid Social
securty and medicare taxes altogether... Is this true?
A subchapter S corp is a pass-through tax entity, which means you report
the tax as an individual. It is not a payroll, so you do not pay SS and
Med tax, but you do pay Self employment tax, which is basically the same
thing.
|
No, there is no self-employment tax on the pass-through of net income from
the S-Corp to the stockholder's 1040. See, for starters, the instructions
for Schedule SE. However, an S-Corp must pay its employees reasonable
wages, which are subject to FICA/Medicare and Unemployment tax.
OP doesn't provide enough information to assess what the CPA told him, but
in short, if something would otherwise be Schedule C income from
self-employment you can't magically exempt yourself from FICA/Medicare by
forming an S-Corp.
--
Phil Marti
Clarksburg, MD |
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John
Guest
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| Posted: Sat Apr 26, 2008 1:29 pm Post subject: Re: Sub Chap. S |
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On Apr 26, 7:39 am, clie...@webtv.net (R R) wrote:
| Quote: |
I'm a self employed insurance broker and work out of my home office (I
do get a good amount of renewals-sort of passive income)... The CPA told
me he has clients who claim 0 $ of income from their S corps and they
make 100-200k per year.
I've also read that's not a good idea as you must pay yourself a
'reasonable' salary as an advisor to the business.
Which is right?
CPA says not reporting wages from the S is not , in itself, a reason for
an IRS audit. He said if you are audited for another reason, they may
hit you with that..
TIA
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it may not be a sole reason but reporting s-corp income on the 1040
without any employee wages is a red flag. I would claim at least a
minimum amount of wages. |
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R R
Guest
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| Posted: Sat Apr 26, 2008 5:39 pm Post subject: Re: Sub Chap. S |
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I'm a self employed insurance broker and work out of my home office (I
do get a good amount of renewals-sort of passive income)... The CPA told
me he has clients who claim 0 $ of income from their S corps and they
make 100-200k per year.
I've also read that's not a good idea as you must pay yourself a
'reasonable' salary as an advisor to the business.
Which is right?
CPA says not reporting wages from the S is not , in itself, a reason for
an IRS audit. He said if you are audited for another reason, they may
hit you with that..
TIA |
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Phil Marti
Guest
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| Posted: Sat Apr 26, 2008 7:36 pm Post subject: Re: Sub Chap. S |
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"R R" wrote:
| Quote: |
I'm a self employed insurance broker and work out of my home office (I
do get a good amount of renewals-sort of passive income)... The CPA told
me he has clients who claim 0 $ of income from their S corps and they
make 100-200k per year.
I've also read that's not a good idea as you must pay yourself a
'reasonable' salary as an advisor to the business.
Which is right?
CPA says not reporting wages from the S is not , in itself, a reason for
an IRS audit.
|
Your CPA is at best extremely agressive. If you follow his advice make sure
you have his written agreement to pay any penalties imposed in an audit, and
make sure he has E&O insurance. He's flat-out wrong that you won't get
audited solely because of this issue. Perhaps he hasn't heard that IRS is
getting more interested in this area as people get more absurdly agressive.
That said, my father was an insurance agent, and I can see a case to be made
for the corporation paying you much less on renewals than on new business.
My father more or less lived off renewals for about the last 10 years he was
actively in the business, and "going to work" amounted more or less getting
to the office in time for morning coffee and getting home in time for lunch
and a nap.
I wouldn't take the position that renewals yield zero payment to the
employee generating them without some case law to back it up.
--
Phil Marti
Clarksburg, MD |
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Paul Thomas, CPA
Guest
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| Posted: Mon Apr 28, 2008 5:05 pm Post subject: Re: Sub Chap. S |
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"R R" <client7@webtv.net> wrote
| Quote: |
I'm a self employed insurance broker and work out of my home office
(I do get a good amount of renewals-sort of passive income)...
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Well, that's not quite true now. If you remain a SE insurance agent,
renewals get listed as n on-employee compensation on the 1099 along with all
other commission payments.
| Quote: |
CPA says not reporting wages from the S is not , in itself,
a reason for an IRS audit.
|
But it is a reason for an audit. One of the things they look at is the type
of business, and how much the distributions are in relation to other
payments, like wages, to the owner(s).
You can't distribute out $100k and $0 in wages for a business without any
other employees and you're doing all the work to generate that $100k.
--
Paul A. Thomas, CPA
Athens, Georgia |
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Taylor
Guest
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| Posted: Mon Apr 28, 2008 7:03 pm Post subject: Re: Sub Chap. S |
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"Phil Marti" <prm20871@verizon.net> wrote in message
news:udmQj.1094$zw6.976@trnddc06...
| Quote: |
"Taylor" wrote:
My current CPA says if I form a sub chap S corp I can avoid Social
securty and medicare taxes altogether... Is this true?
A subchapter S corp is a pass-through tax entity, which means you report
the tax as an individual. It is not a payroll, so you do not pay SS and
Med tax, but you do pay Self employment tax, which is basically the same
thing.
No, there is no self-employment tax on the pass-through of net income from
the S-Corp to the stockholder's 1040. See, for starters, the instructions
for Schedule SE. However, an S-Corp must pay its employees reasonable
wages, which are subject to FICA/Medicare and Unemployment tax.
OP doesn't provide enough information to assess what the CPA told him, but
in short, if something would otherwise be Schedule C income from
self-employment you can't magically exempt yourself from FICA/Medicare by
forming an S-Corp.
--
Phil Marti
Clarksburg, MD
|
I think you are confused between wages and shareholder distribution. You
are correct that you must withhold FICA and other taxes on wages. However,
on shareholder distributions, it is not a wage, so there is no FICA and
other taxes. However, you should list this income on Schedule SE and pay
self-employment tax on it in the situtaiton described on the original post.
Now, you can take compensation in both forms from the corporaton: wages and
shareholder distribution. If you are the sole owner and are taking regular
distributions, the IRS can impute a reasonable wage (since taxes are
generally higher on wages). For that reason, you should take a "reasonable"
wage with the remainder as a shareholder distribution. |
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Paul Thomas, CPA
Guest
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| Posted: Mon Apr 28, 2008 7:32 pm Post subject: Re: Sub Chap. S |
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"Taylor" <taylor@nospam2me.com> wrote
| Quote: |
"Phil Marti" <prm20871@verizon.net> wrote
"Taylor" wrote:
My current CPA says if I form a sub chap S corp I can avoid Social
securty and medicare taxes altogether... Is this true?
A subchapter S corp is a pass-through tax entity, which means you report
the tax as an individual. It is not a payroll, so you do not pay SS and
Med tax, but you do pay Self employment tax, which is basically the same
thing.
No, there is no self-employment tax on the pass-through of net income
from the S-Corp to the stockholder's 1040. See, for starters, the
instructions for Schedule SE. However, an S-Corp must pay its employees
reasonable wages, which are subject to FICA/Medicare and Unemployment
tax.
OP doesn't provide enough information to assess what the CPA told him,
but in short, if something would otherwise be Schedule C income from
self-employment you can't magically exempt yourself from FICA/Medicare by
forming an S-Corp.
--
Phil Marti
Clarksburg, MD
I think you are confused between wages and shareholder
distribution. You are correct that you must withhold FICA
and other taxes on wages. However, on shareholder
distributions, it is not a wage, so there is no FICA and other taxes.
However, you should list this income on
Schedule SE and pay self-employment tax on it in the
situtaiton described on the original post.
|
Distributions from an "S" corporation are not subject to SE tax, and
therefore would not flow to the SE.
Wages however, are subject to payroll tax (FICA and Medicare) withholding
and company matching, as well as FUTA and SUTA tax.
| Quote: |
Now, you can take compensation in both forms from
the corporaton: wages and shareholder distribution.
|
Distributions from an "S" are not considered to be "compensation", but just
what they are - distributions of profit from an "S" corporation.
--
Paul A. Thomas, CPA
Athens, Georgia |
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Taylor
Guest
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| Posted: Tue Apr 29, 2008 9:05 pm Post subject: Re: Sub Chap. S |
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"Paul Thomas, CPA" <paulthomascpapc@bellsouth.net> wrote in message
news:vdlRj.24140$3v1.8445@bignews3.bellsouth.net...
| Quote: |
"Taylor" <taylor@nospam2me.com> wrote
"Phil Marti" <prm20871@verizon.net> wrote
"Taylor" wrote:
My current CPA says if I form a sub chap S corp I can avoid Social
securty and medicare taxes altogether... Is this true?
A subchapter S corp is a pass-through tax entity, which means you
report the tax as an individual. It is not a payroll, so you do not
pay SS and Med tax, but you do pay Self employment tax, which is
basically the same thing.
No, there is no self-employment tax on the pass-through of net income
from the S-Corp to the stockholder's 1040. See, for starters, the
instructions for Schedule SE. However, an S-Corp must pay its employees
reasonable wages, which are subject to FICA/Medicare and Unemployment
tax.
OP doesn't provide enough information to assess what the CPA told him,
but in short, if something would otherwise be Schedule C income from
self-employment you can't magically exempt yourself from FICA/Medicare
by forming an S-Corp.
--
Phil Marti
Clarksburg, MD
I think you are confused between wages and shareholder
distribution. You are correct that you must withhold FICA
and other taxes on wages. However, on shareholder
distributions, it is not a wage, so there is no FICA and other taxes.
However, you should list this income on
Schedule SE and pay self-employment tax on it in the
situtaiton described on the original post.
Distributions from an "S" corporation are not subject to SE tax, and
therefore would not flow to the SE.
Wages however, are subject to payroll tax (FICA and Medicare) withholding
and company matching, as well as FUTA and SUTA tax.
Now, you can take compensation in both forms from
the corporaton: wages and shareholder distribution.
Distributions from an "S" are not considered to be "compensation", but
just what they are - distributions of profit from an "S" corporation.
--
Paul A. Thomas, CPA
Athens, Georgia
|
Yes, I researched it and S-corp distributions are reported by the S-corp on
a K-1 form, and are not considered self-employment income. It appears the
S-Corp income should go on form 1040 line 17, using Schedule E. Is this
correct? |
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Paul Thomas, CPA
Guest
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| Posted: Tue Apr 29, 2008 10:39 pm Post subject: Re: Sub Chap. S |
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"Taylor" <taylor@nospam2me.com> wrote
| Quote: |
Yes, I researched it and S-corp distributions are reported
by the S-corp on a K-1 form, and are not considered
self-employment income. It appears the S-Corp income
should go on form 1040 line 17, using Schedule E. Is this correct?
|
The bulk of the profits go there, yes. There are however, specific items of
income and/or expense that are reported elsewhere on the shareholders
return.
Interest, dividends, capital gains / losses and charitable contributions are
the ones that come to mind as specific items that wouldn't get reported
through Schedule E, but their respective schedules (A, B, D). Credits are
another source of separately stated items that don't flow through the E, but
would be reported accordingly on a separate form or schedule.
--
Paul A. Thomas, CPA
Athens, Georgia |
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R R
Guest
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| Posted: Wed Apr 30, 2008 5:09 am Post subject: Re: Sub Chap. S |
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Your CPA is at best extremely agressive. If you follow his advice make
sure you have his written agreement to pay any penalties imposed in an
audit, and make sure he has E&O insurance. He's flat-out wrong that you
won't get audited solely because of this issue. Perhaps he hasn't heard
that IRS is getting more interested in this area as people get more
absurdly agressive.
That said, my father was an insurance agent, and I can see a case to be
made for the corporation paying you much less on renewals than on new
business. My father more or less lived off renewals for about the last
10 years he was actively in the business, and "going to work" amounted
more or less getting to the office in time for morning coffee and
getting home in time for lunch and a nap.
I wouldn't take the position that renewals yield zero payment to the
employee generating them without some case law to back it up.
--
Phil Marti
Clarksburg, MD
-------------------------
I like your father already..! especially the nap part..
Thank you guys for all the input...
I don't want to get into quarterly reporting and having to contract with
a pay checks type of company to pay unemployment tax and the other nit
picking stuff.. I like to KISS it ....
But I understand I can save quite a bit of of SS and medicare taxes.. It
all seems to be a PITA...
I'm going to get a dif. CPA.
And as of now I'm still a sole prop..I might just keep it that way... |
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Taylor
Guest
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| Posted: Wed Apr 30, 2008 6:27 pm Post subject: Re: Sub Chap. S |
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"Paul Thomas, CPA" <paulthomascpapc@bellsouth.net> wrote in message
news:b3JRj.24797$3v1.3716@bignews3.bellsouth.net...
| Quote: |
"Taylor" <taylor@nospam2me.com> wrote
Yes, I researched it and S-corp distributions are reported
by the S-corp on a K-1 form, and are not considered
self-employment income. It appears the S-Corp income
should go on form 1040 line 17, using Schedule E. Is this correct?
The bulk of the profits go there, yes. There are however, specific items
of income and/or expense that are reported elsewhere on the shareholders
return.
Interest, dividends, capital gains / losses and charitable contributions
are the ones that come to mind as specific items that wouldn't get
reported through Schedule E, but their respective schedules (A, B, D).
Credits are another source of separately stated items that don't flow
through the E, but would be reported accordingly on a separate form or
schedule.
--
Paul A. Thomas, CPA
Athens, Georgia
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Does the S-corp also have to file its own return? |
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Phil Marti
Guest
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| Posted: Wed Apr 30, 2008 9:53 pm Post subject: Re: Sub Chap. S |
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"Taylor" wrote:
| Quote: |
Does the S-corp also have to file its own return?
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Yes, the 1120-S. It has a Schedule K-1 that shows the items passed through
to the shareholders' 1040's.
--
Phil Marti
Clarksburg, MD |
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