Have Tax Questions? Ask a Tax Expert for Answers ASAP
Hi and welcome to Just Answer!
How your business is organizeed?
How your business is organized? Is that a solo proprietorship? LLC? Other?
My business is a s-corporation.
As an employee of S-corporation - you should receive reasonable wages. S-corporation should pay employment taxes. These wages are deductible for S-corporation and are reported to you on W2 form.The remaining profit is reported to you on schedule K-1. That income is not subject of self-employment taxes.There is no need to subcontract with your S-corporation.
I am not an employee of S-corporation. I was told to join an employment agency so that I get a regular pay check with taxes withheld so I can deduct at year end.
Indeed the IRS treats you as an employee of your S-corporation.Please see for reference - http://www.irs.gov/newsroom/article/0,,id=200293,00.html The Internal Revenue Code establishes that any officer of a corporation, including S corporations, is an employee of the corporation for federal employment tax purposes. S corporations should not attempt to avoid paying employment taxes by having their officers treat their compensation as cash distributions, payments of personal expenses, and/or loans rather than as wages.
So being an employee of an employment agency is the best way to go?
Also should I be adding on a % to my bills to pay federal taxes
Your federal income taxes are based on your total income. You may have 15% as a raw estimate.
There will be FICA taxes - total 13.3% on your wages - part is paid by S-corporation and another part is withheld from employee's paychecks.
What is FICA taxes
FICA stands for Federal Insurance Contributions Act - includes Social Security and Medicare taxes.
Medicare 1.45% and Social Security 6.2% - each employer pays in to the IRS.Same amounts are paid by each employee. However employee's portion of Social Security is set to 4.2% in 2012.
So again. I should be an employee of an employment agency. And should be adding roughly 15% to my bids to cover the feds.
If you are an employee of your S-corporation - all payroll taxes are paid by the S-corporation. You may estimate payroll taxes as roughly 15%. Income taxes are paid by the employee - so that is not a concern of the S-corporation.