My husband and I are both insurance agents (independent contractors who work for 3 different companies/brokers... we do not have a brick-and-mortar... just us traveling around) Last year we earned around $120,000 (almost twice our previous income, so it was a surprise!). We did not pay any income tax
during 2011 as most of the income came at the end of the year. Anyway, we have $13,500 due in taxes
:-( On the advice of an accountant, we have begun the formation of an S-Corp in order to displace some of the self-employment tax.
I have a finance degree but never used it lol so the bookkeeping aspect and taxes are confusing to put it mildly. I will be using quickbooks with payroll. He and I will both be W-2 employees. He will earn $30,000 and I will earn $20,000 salaries. From what I understand THAT $50,000 will be the portion we pay the full FICA and medicare
on (both employer and employee portions aka self-employment tax).
However, here's my question... the accountant said we had access to the remaining income as "profit-sharing". How in our book keeping process do we distribute this profit portion? And what form will be needed at the end of the year to show that this profit was distributed to he and I as shareholders OR the president/vice-president or whatever in order not to pay the employer/employee taxes on it? I'm still confused somewhat so you can tell my question is clearly confusing b/c I am still confused. I have to have it all clear in my head before I can proceed.
I will be filing our articles of incorporation on Monday and have schedule our first Board of Directors Meeting and Shareholders Meeting for April 1. We are assigning all of our commissions from the various sources to our corporation into a business banking account, then I will be issuing us weekly paychecks. However, I will also need to issue a portion of the profits (or whatever I should refer to them as... pay ABOVE our salaries) on a monthly basis as well. So that's the part I am unclear about *how* to do... book-keeping-wise.
Also, I'd like to know if it would be more advantageous for us to pay business expenses
from the corporation (as an expense account)... or pay them personally and use them as a non-reimbursed employee expense on our 1040 next year. We have mileage/vehicle expenses, car insurance, professional insurance, hotels, food while traveling, etc. I'm thinking we should save it for our 1040 but I want to be sure that's the standard?
Lastly, is it possible to pay our gas/vehicle repairs as an expense that the corporation covers THEN claim the actual mileage on our 1040?
I think that's all... I promise I'm a tipper :-)
Erin in Alabama