Hello! I am a CPA here to assist you with your tax questions. My goal is to provide you with excellent service today.
What other income do you have besides the income from this business?
This will be pertinent information to calculate your S Corp tax liability
If you have a corporation and pay yourself $34,000 and pay $6,000 out in medical costs, then you will have no corporate income tax and you will be taxed on $34,000 at your tax rate.
Your optimal configuration will typically be the S Corp if you are a small business.
Your savings would be the savings of payroll taxes on $10,000 of income. In both cases you have $34,000 of income to be taxed, but under the S Corp only $24,000 of it is salary
So, you would save 15.3% of $10,000 or $1,530
I don't need your other income information, because your income tax would be the same under both scenarios. It's just what is your payroll tax liability overall that changes
Medical insurance is fully deductible by the C Corp, and is also deductible by the S Corp. But the S corp will include the amount as wages, but won't be subject to FICA /FUTA taxes.
You can read about S Corp issues, here: CLICK HERE
1. So what should I go with C-Corp or S Corp?
2. Or there is a better alternative/cobmination that can save more tax?
I would go with the S Corp
Your only other alternative would be to be a sole proprietor, and there you would pay self employment tax on 100% of your profits.
S Corp is a friendlier organization
ok, so from purely a tax perspective (ignoring the hassle of paperwork involved with C corp), do you think S Corp will save more tax than any other combination?
Yes, I think S Corp will save more tax overall
ok grt. thank you.
You're welcome. Is there anything else I can assist you with today? If not, please rate as "excellent" so that I may receive credit for assisting you today
sorry, just one more question - in case of S Corp, if the corp pays $6K in medical insurance cost, and 24K in salary, would the federal and state income tax be on 24K or 30K or 40K?
$30,000 but no FICA taxes on it
so you're still saving about $1,500 overall between the two
that's your salary
then you would have the $10,000 profit that would be taxed as well
So $40,000 total
no fica taxes on 6K of the 30K? or no fica tax on whole of 30K?
you will have FICA on $24K
Do you have any further questions?
no, thank you. will rate now.
Thanks so much!
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