How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask R. Klein, EA Your Own Question

R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2925
Experience:  Over 20 Years experience
63817126
Type Your Tax Question Here...
R. Klein, EA is online now
A new question is answered every 9 seconds

I own 100% of a C corp which manages contracts for sales representation

Resolved Question:

I own 100% of a C corp which manages contracts for sales representation with one company (commission only) AND my contract providing corporate finance advice.

I have a new opportunity to contract either with myself or my company to a new customer at a fixed day rate for 3 months. From a tax perspective, what are the pluses and minuses of 1099 to me as an individual vs. a contract with my company?
Submitted: 1 year ago.
Category: Tax
Expert:  R. Klein, EA replied 1 year ago.

R. Klein, EA :

Thank you for contacting me about your Tax issue. I will work hard to help you understand the issue clearly.

R. Klein, EA :

Thanks you for your tax question this morning.

Customer:

hello?

R. Klein, EA :

The real difference is whether you want all of the money from this contract to go to you, or if you want to push some of this income to the corporation. Without knowing the specifics of the corporation's net income and your tax rate, it is impossible to determine which is better on an after-tax basis

R. Klein, EA :

You should be getting a W-2 from the corporation as an employee as it is.

R. Klein, EA :

This comes down to a business decision much more than a tax decision. Don't let the tag tail wag the dog.

R. Klein, EA :

(that's "Tax Tail wage the dog")

R. Klein, EA :

wag

R. Klein, EA :

can't type this morning

Customer:

If I use the corp. I will pay myself a paycheck and file a W-2. Corporation will likely wind up with near zero income and personally, wife and I will have $140kish gross income, $30k of itemizable deductions.

Customer:

appreciate your comment about the business dog vs. tax tail. What business considerations do you see? The only one I see is better liability protection in the corporation vs. better income protection in the courts (God forbid) if I'm not paid; California courts more likely to weigh in favor of an individual vs. Corp.

R. Klein, EA :

Either way let's you deduct your overhead and expenses before being taxed.

R. Klein, EA :

However, based on your comment, you may not be using the corporation to your best tax effect.

R. Klein, EA :

The corporate tax rate is 15% at income under 50K. Assume you have a $10K profit.

R. Klein, EA :

Your corp pays $1500 tax. You then have 8500 left to distribute as a dividend

R. Klein, EA :

Your personal tax rate is around 25%. Dividends are taxed at 15%.

R. Klein, EA :

So you take a dividend of 8500 and it's total tax is 1275. You have paid a total of 1275+1500 = 2775 on that 10K

R. Klein, EA :

If you take the 10K as a 1099 (after expenses), you have $2500 income tax (25%)

R. Klein, EA :

PLUS 15% more for Self employment tax = 4000 on 10K. 40% versus 27.75% effective tax rate

R. Klein, EA :

Of course, you could set aside 20% of the self employment for retirement. You could not do that as a dividend.

R. Klein, EA :

So, your income tax would go down by (25% * 2000) = 500, and you would have 2000 in an IRA

R. Klein, EA :

everything is relative

Customer:

Mr. Klein, I'm a little confused. Appreciate that everything is relative!

R. Klein, EA :

What are you confused about?

Customer:

Is there a device where I can inexpensively make a tax-deferred retirement contribution from the corp? If so, it seems that the deduction of funding the retirement fund is pre-pre tax, and the employment taxes would only be paid on the W-2 income. Am I missing something

R. Klein, EA :

A retirement contribution by the CORP can only be made based on the wages you are paid from the corporation. This might take the form of a SIMPLE IRA match, or a 401K match,

Customer:

what about a defined benefit plan?

R. Klein, EA :

As a self-employed person, you might select an SEP, a SIMPLE, or hybrid 401k. All of these are based on your net self-employment earnings

R. Klein, EA :

A DB plan is nice too, but again, you are limited to your earnings as an empployee.

R. Klein, EA :

You have to consider whether your "contractors" are truly contractors or if they are really YOUR employees.

R. Klein, EA :

If they are your employees, you have to cut them into any corporate level benefit program to be fair and legal.

R. Klein, EA :

These people may be contrated out and act as contractors to the corproation's customers, but they might be your corproation's employees

R. Klein, EA :

That's a "whole nuther" discussion

R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2925
Experience: Over 20 Years experience
R. Klein, EA and 4 other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
 
 
 
Chat Now With A Tax Professional
R. Klein, EA
R. Klein, EA
Tax Advisor
1601 Satisfied Customers
Over 20 Years experience