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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16559
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I own a hair salon and cut hair 3 days a week, just myself

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I own a hair salon and cut hair 3 days a week, just myself I pull in $80k a year. I am an S Corp so can I pay myself a reasonable salary of 32k, pay payroll tax on that amount and then pass through the remaining 48k? Even though 32k is very reasonable for a hair dresser in my area I actually make 80k. This is very confusing to me.

MyVirtualCPA :

Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

MyVirtualCPA :

How are you today?

MyVirtualCPA :

What you describe sounds reasonable; you will pay yourself a "reasonable salary" based on what someone would make as a hairdresser in your area, and then the rest of what you take out of the business is considered return of capital.

Customer:

So even though I am actually earning 80k by myself I am able to pay myself a "reasonable" salary and then treat the draws I make as return on capital?

MyVirtualCPA :

Yes, but you are still paying income tax on the entire 80,000

MyVirtualCPA :

it's just the self employment taxes you are only paying that on the $32,000

MyVirtualCPA :

There are two taxes

Customer:

Do I have to pay self employment tax or payroll tax on the 32k?

MyVirtualCPA :

Yes.

MyVirtualCPA :

Payroll taxes are self employment taxes

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