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Category: Finance
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Experience:  Tax professional and business consultant for 35 years.
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Thinking about forming an S-corporation; but concerned about

Customer Question

Thinking about forming an S-corporation; but concerned about how the numbers will work out with taxation. I have spread sheet that I would like analyzed and shown what the actual net bi-weekly pay would be for the officer.
Submitted: 1 year ago.
Category: Finance
Expert:  PDtax replied 1 year ago.

Hi from just answer. I'm PDtax. I'll assist.

Expert:  PDtax replied 1 year ago.

If you can post what you want me to review, I can look at it this afternoon.

Customer: replied 1 year ago.
hi, I can work on getting you the spreadsheet, but basically; I wanted a complete breakdown of estimated taxes and deductions would be for an S-Corp formed in New jersy and doing business in New Jersey and New York. The officer will be working as a consultant at a rate of 750 per day. So the spread sheet should provide automatic estimations based on the rate and the pay for the for officer. Does this make sense?
Customer: replied 1 year ago.
Here is sample spreadsheet that I was thinking of : is spread sheet for comparison; but I only care about the s-corp and figuring out if my bi-weekly salary (after taxes) + dividend distribution would look like at different values. At the rate meniontioned above; I want to see if it's reasonable to do if the officer is currently working full time with bi-weekly of say 2700.00.
Expert:  PDtax replied 1 year ago.

I typically recommend S corp status, which allows a split of the taxable income into a wage and 'business profits', not dividends, if your business will make in excess of $20,000 per year. That would allow you to claim a wage of $13,000 and save the social security tax on $7,000, which is a saving of $1,000 or so annually.

As the income goes up, so must your wage, but the amount not subbject to social security taxes goes up too.

The work you have in mind, as a consultant for $750 per day, is an excellent use of a S corp. You could set the wage to be $250 per day, for example, which would save significant social security tax dollars and make payroll math relatively easy.

Expert:  PDtax replied 1 year ago.

If you had gross income for 2016 available, it would be easier to do the payroll math, but let's set your wage at $800 per week. That's a wage of $41,600 per year. Income tax withholdings will be approximately 20%, or $160 per week combined Fed and the state of your residence. Social Security and Medicare will be 7.65%, or $61.20 per week. Your net pay would be approximately $580 per week. these are approximate because I do not know your filing status or number of exemptions.

Expert:  PDtax replied 1 year ago.

You could draw additional funds from the S corp as you wished, as you would report that income at year end and pay income tax at that time.

I hope that covers things for you. Thanks for asking at Just Answer. Positive feedback is appreciated. I'm PDtax.

Customer: replied 1 year ago.
Is it possible to do a break down as per the spreadsheet on biztaxtalk?
Where I can change the officer pay and total gross income to see what the values will change to.I didn't understand your dividend statement. I thought I read that as an S-Corp that you had to distribute profits to shareholders? And the idea behind that is to save on self-employment tax. But I feel that if you do save on self-employment
tax you will still be taxed on the dividend distribution as it will increase your total income anyway?Based on what you said, I would be assuming a gross income of 180K (i.e. ~90 per hour * 2,000 hours for year).
The idea is to have a net of 1500 per week. Is this possible and if so how would I need to structure things.
This is also assuming that the corp will cover expenses such as medical and dental which I already calculated
to ~3k a month. Is there table to determine income tax withholdings require for Fed and State? Approximate values
are fine as long as are talking higher end values or worst case scenarios.Also in doing this, I want to use my 401k from my current company to pay off my house. Is this possible? I'm assuming that it doesn't make sense due to the penalties and tax implications.
Expert:  PDtax replied 1 year ago.

Hang on. There's a lot you are asking here. And i looked at your link, and saw no spreadsheet to work with.

I mentioned distributing profits to you. "You could draw additional funds from the S corp as you wished, as you would report that income at year end and pay income tax at that time." is just that. They are not dividends. they are taxed as regular income dollars.

If your income will be that substantial then pay yourself the maximum social security wage of $118,500. Base your withholdings on that amount.

I suggest that we work on your first question until you are satisfied, then adxdress things like 401(k) distributions in another question thread.


Customer: replied 1 year ago.
Ok agreed, the 401k question is a different topic all together.The spread sheet near the bottom of the page called Scenario1_Details.xlsMaybe you could correct/update any values in that spread sheet and change the gross income as indicated here (i.e. 180k)
and the medical/dental expense (i.e. 3k per month). That would be perfect as it would answer my questions in detail; I think.So instead of paying myself dividends; I would just withdraw additional money from the corporation and be taxed as
income. So that would be distributed as a bonus? Something at the end of the year? Or I can just write myself a
check arbitrarily?Are you saying that if I need 1500 per week, that I might as well pay myself the max SSI 118,500; which will maximize
my income by saving on taxes by not having to pay SSI in this case?
If so, what would be the weekly net in this case? And I think paying this much would put the company at a loss?Hopefully this puts us back on track.
Customer: replied 1 year ago.
Good morning, just following up on this; can I expect anything today?
Expert:  PDtax replied 1 year ago.

I found the spreadsheet you referred to.

I can do this, but will need to ask for an additional fee through our Offer of Additional Service. This is a sizable project.

Please confirm the amount of wages you want to use, as we have discussed several levels, when I work the figures through that model.