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Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 721
Experience:  Certified Public Accountant
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I retired last fall at 63. I have stared an online craft

Customer Question

I retired last fall at 63. I have stared an online craft supply business that is doing well. I think i can buy from some suppliers at a better price if I incorporate, but am not sure what I should do foor the tax end of the business. Now that I am retired I believe I am only allowed to make $18,000 without it affecting my SS benefits and I don't want any problems with that. Can I incorporate and have the business be a separate entity from my personal taxes so that my SS benefits will not be affected? This would result is 2 tax returns I understand, but if I could do this to protect my personal assets and my SS then it may be worth while to do. Please give me your input and if it's to incorporate, which form of incorporation would be best for me? I live in North Carolina. Thank you.
Submitted: 2 months ago.
Category: Tax
Expert:  Mark Taylor replied 2 months ago.

Hi, my name is Mark. I will be happy to help you with your questions. If you do incorporate you would be creating a separate entity. This entity would be separate from you. You would need to form a C-Corporation. With a C-Corporation you would need to pay yourself a reasonable salary. So you would also have payroll reports to file. Any taxable income generated by the C-Corporation would be subject to tax. The income would be taxed a second time when you take it out as dividends. So with a C-Corporation one of the drawbacks is that there are two levels of taxation (one at the corporate level and one at the individual level when dividends are paid).

Customer: replied 2 months ago.
I definitely understand from my limited knowledge of incorporation that there are drawbacks. By forming a C-Corporation as you're suggesting, as long as my salary was not above the maximum allowed for my SS benefits without penalty, would this process protect my SS benefits from being affected by the money generated by the business?
Expert:  Mark Taylor replied 2 months ago.

Let's assume that the corporation generated a profit of $40,000. You could pay yourself a salary of $18,000 and you would not go above the amount for SS benefits. The remaining $22,000 would be taxed in the corporation. Once you take out the difference ($22,000 of net income less taxes paid) you would pay taxes as dividends.

Expert:  Mark Taylor replied 2 months ago.

I am showing that the limit is $15,720.

Expert:  Mark Taylor replied 2 months ago.

For income before your benefits are impacted.

Expert:  Mark Taylor replied 2 months ago.

I hope you found this information to be beneficial. If this answered your question please take a few moments to rate my response. A rating is needed in order for me to receive credit for helping you today. The rating bar is located at the top of the page – ranging from 1 to 5 stars. If you need me to clarify aspect of my response or if there are additional areas of the question that you would like me to consider please let me know. I would be happy to continue the discussion. It has been my pleasure helping you today.

Customer: replied 2 months ago.
Okay, I honestly wasn't sure what the limit was, so thank you for clarifying that. Is there a percentage that has to be taken out to be considered a "reasonable" salary? I'm guessing there is. If so what is the percentage? And is there a total percentage of the business's profits that need to be taken out in total salaries each year to avoid penalty when filing taxes?
Expert:  Mark Taylor replied 2 months ago.

With a C-Corporation the concern is that the salary would be too high. By having a salary that is too high you would be avoiding the corporate tax and only paying taxes at the individual level. There is no percentage.

Expert:  Mark Taylor replied 2 months ago.

I did not want to tell you to take $18,000 and have you be penalized. That was the reason that I double checked the amount.

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