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Started By
Message
Help me avoid getting massacred on taxes
Posted on 11/4/14 at 9:45 am
Posted on 11/4/14 at 9:45 am
I'm 29, married, wife starting grad school in January and currently not working. We just had our first child 6 weeks ago. She will not have taxable income this year.
I work as a W2 employee for 65k/year with a schedule that affords me the opportunity to run a small subcontracting business on the side. My company subcontracts physical therapy services for a few home health agencies, and I have 5 employees who contract these services for me. After paying my employees I will net about 70k in 2014 on the side business. I expect this to grow to about 100k for 2015.
By years end I will pay about 9k in federal taxes at my W2 gig, and another 9k for the 1099 gig as I have been paying quarterly. I'm also paying state quarterly but not real worried about that at the moment. I'm currently registered as an LLC for my side business and all the money I make ultimately gets funneled into my personal accounts.
Questions: am I paying too little in taxes? Until a week ago I was doing withholdings at salaried job like an unmarried guy with no kids and paying online with that in my side gig. Also, is there a better tax structure I could be using for my side business? I usually just calculate how many visits my employees did, pay them, pay myself for any I did, and keep what's left over.
I work as a W2 employee for 65k/year with a schedule that affords me the opportunity to run a small subcontracting business on the side. My company subcontracts physical therapy services for a few home health agencies, and I have 5 employees who contract these services for me. After paying my employees I will net about 70k in 2014 on the side business. I expect this to grow to about 100k for 2015.
By years end I will pay about 9k in federal taxes at my W2 gig, and another 9k for the 1099 gig as I have been paying quarterly. I'm also paying state quarterly but not real worried about that at the moment. I'm currently registered as an LLC for my side business and all the money I make ultimately gets funneled into my personal accounts.
Questions: am I paying too little in taxes? Until a week ago I was doing withholdings at salaried job like an unmarried guy with no kids and paying online with that in my side gig. Also, is there a better tax structure I could be using for my side business? I usually just calculate how many visits my employees did, pay them, pay myself for any I did, and keep what's left over.
6
Posted on 11/4/14 at 10:08 am to Saint5446
You're about to feel like a Democrat with the tax refund you are going to get.
Posted on 11/4/14 at 10:37 am to anc
Haha best response I've ever gotten on here hands down.
Posted on 11/4/14 at 10:38 am to anc
quote:
You're about to feel like a Democrat with the tax refund you are going to get.
Good one. To the OP, get with an accountant...I'd guess you'll get a nice refund this year. Talk with accountant to avoid giving Sam an interest free loan.
Posted on 11/4/14 at 11:01 am to LSU0358
Set up a self directed 401k or SEP. Fully fund a HSA account. Give your employees a nice Christmas bonus. Next?
Posted on 11/4/14 at 11:02 am to LSU0358
Definitely. Unless you are an accountant by trade or really comfortable with accounting practices, someone with your income (100k+) should drop the $250 a year it takes to have an accountant do everything.
That $250 a year usually saves me $3-4k. Good job getting your crap in order in your 20s. Let it be a foundation for a great life instead of an excuse to buy toys.
That $250 a year usually saves me $3-4k. Good job getting your crap in order in your 20s. Let it be a foundation for a great life instead of an excuse to buy toys.
Posted on 11/4/14 at 12:00 pm to Saint5446
quote:
Questions: am I paying too little in taxes? Until a week ago I was doing withholdings at salaried job like an unmarried guy with no kids and paying online with that in my side gig.
There's a calculator on the IRS website that can help you ballpark how much you should be having withheld. You can use that also to tell you if you are paying in enough with your side gig.
quote:
and I have 5 employees who contract these services for me.
Are they really employees (i.e. you withhold taxes on them and you give them a W-2) or are they really contractors for you (you give them a 1099 each year)?
quote:
Also, is there a better tax structure I could be using for my side business?
At 100K of net, I'd start to look at an S Corp. I would imagine self-employment taxes are going to start to really be a burden.
You need to go talk to a CPA, and not the guy that you pay $250 at H&R Block. There are many things you can do here to make the tax burden easier on you, and also make sure everything is legit.
Posted on 11/4/14 at 12:01 pm to sstig
Thanks guys. Have an accountant but I only see him once a year and he seems to be kind of sketchy and lets just say "generous" with the deductions. If anyone has a CPA in the Nola area they recommend I'm all ears.
Also have 401k with a 4% match through W2 gig and health insurance that I'm gonna be handling through an HSA in 2015. Maxing a Roth for the past 3 years on my own.
If I could just finish off these school loans (40k between the wife and I) I would be on my way to buying a house.
Also have 401k with a 4% match through W2 gig and health insurance that I'm gonna be handling through an HSA in 2015. Maxing a Roth for the past 3 years on my own.
If I could just finish off these school loans (40k between the wife and I) I would be on my way to buying a house.
Posted on 11/4/14 at 12:03 pm to LSUFanHouston
"Employees" are 1099 contractors.
Posted on 11/4/14 at 1:03 pm to Saint5446
quote:
Saint5446
quote:
If anyone has a CPA in the Nola area they recommend I'm all ears
shoot me an email xxxxxxxxxx and I have a contact for you.
let me know when you get my address so I can take it down.
This post was edited on 11/4/14 at 2:32 pm
Posted on 11/4/14 at 1:07 pm to LSUFanHouston
quote:He has $65K of salary that is subject to withholding. So the FICA component of self-employment taxes will only apply to about $50K of self-employment income. If he sets up an S-corp. he will have to pay himself a reasonable salary to avoid the S-corp. income being self-employment income. If the S-corp. is a personal service business, then he might need to set his salary too high to benefit from any self-employment tax savings.
I would imagine self-employment taxes are going to start to really be a burden.
He might be better off letting the side business be taxed as a sole proprietorship that would allow for increased retirement savings as a means of minimizing his tax burden.
Posted on 11/4/14 at 1:32 pm to Saint5446
Will your child be going to daycare? You can claim a credit for child care costs as long as your wife is a full time student. If your wife is not going to be a full time student, then have your business pay her a salary so that she has earned income to justify the child care credit.
I'd be careful treating your workers as independent contractors. You may be exercising enough control over their activities that they will be considered employees. I recommend you discuss this matter with an attorney experienced in employment law. It can be quite expensive to have your workers declared employees for years you previously treated them as independent contractors.
I'd be careful treating your workers as independent contractors. You may be exercising enough control over their activities that they will be considered employees. I recommend you discuss this matter with an attorney experienced in employment law. It can be quite expensive to have your workers declared employees for years you previously treated them as independent contractors.
Posted on 11/4/14 at 2:25 pm to Poodlebrain
No daycare for a while as he is 6 weeks old haha. Fortunate to have family who can help with that. Also it's pretty widely accepted in home health that people are employed as contractors. Have actually never heard of someone being considered a w2.
Posted on 11/5/14 at 12:59 pm to Saint5446
Poodlebrain is correct.
There is much more to it and even through they are "widely accepted", you can be liable for back SSI etc if a former 1099 employee sues you. This is similar to home help.
See below:
There is much more to it and even through they are "widely accepted", you can be liable for back SSI etc if a former 1099 employee sues you. This is similar to home help.
See below:
Posted on 11/5/14 at 2:56 pm to Poodlebrain
quote:
If the S-corp. is a personal service business
This sucks, I get shafted with it every year, but I thought it was professional services, either way it sucks
ETA: I see it is personal services, and was explained to me as a rule of thumb that if what you do requires a license than it is a personal service
This post was edited on 11/5/14 at 3:00 pm
Posted on 11/9/14 at 9:17 am to Saint5446
I am a CPA originally from New Orleans, currently in Alabama. If you need help let me know. You can email me coreysavoie@gmail.com.
But in your current set up. You're currently subject to the self employment tax on the difference in your W-2 earnings and the limit of approx 113k. This will be approx 13.5% of net income. Which can become severe if not properly planned for.
The ideal situation would be to incorporate (taxed as s corp)and pay yourself a salary if you intend to grow. You then could pay your employees vs sub contract wages.
However this option comes with a little cost. You would he to file an 1120s and payroll taxes.
The bigger question I would wonder would be, are you taking all of the relevant deductions? Also, with you I would make sure you have good records. I would hope you have separate checking accounts and properly distribute the cash tto yourself.
Just a few thoughts.
But in your current set up. You're currently subject to the self employment tax on the difference in your W-2 earnings and the limit of approx 113k. This will be approx 13.5% of net income. Which can become severe if not properly planned for.
The ideal situation would be to incorporate (taxed as s corp)and pay yourself a salary if you intend to grow. You then could pay your employees vs sub contract wages.
However this option comes with a little cost. You would he to file an 1120s and payroll taxes.
The bigger question I would wonder would be, are you taking all of the relevant deductions? Also, with you I would make sure you have good records. I would hope you have separate checking accounts and properly distribute the cash tto yourself.
Just a few thoughts.
Posted on 11/9/14 at 9:54 am to Saint5446
Find the best accountant in town and hire him. You almost always get what you pay for with accountants and lawyers.
Posted on 11/10/14 at 12:48 pm to Savoiecorey
quote:I beg to differ with you. You do not have near enough information to make such a determination. The self-employment tax savings from an S-corp. might be non-existent if the reasonable compensation he would have to receive from the S-corp. would push him to the FICA limits. If that is the case, then he would likely be better off paying the self-employment tax, and avail himself of the ability to defer more tax through increased retirement savings.
The ideal situation would be to incorporate (taxed as s corp)and pay yourself a salary if you intend to grow.
Posted on 11/10/14 at 1:45 pm to Poodlebrain
quote:
The self-employment tax savings from an S-corp. might be non-existent if the reasonable compensation he would have to receive from the S-corp. would push him to the FICA limits.
This is the big issue, and this is where an advisor really needs to understand the company.
If the OP is doing very little of the work himself, and farming most of it out to his contractors, I could make an argument that he's performing more as an investor, and would argue for a lower salary as reasonable, which would push more towards an S corp.
If the OP is doing a decent amount of the work himself, then he would have to probably pay a high enough salary to get past reasonableness rules, that an S might not make too much sense right now (but might in the future should he quit the other company, or his work with this entity changes).
If the OP is managing the contractors, then I think there is a contractor vs employee issue.
Posted on 11/10/14 at 4:11 pm to LSUFanHouston
Absolutely. The advice he is being given on this board is for his immediate benefit. It may not be good advice for even the mid-term benefit of the OP. Any advisor would have to know what his spouse plans to do upon finishing her graduate studies, what the OP wants to do with the side business and his other career as well as other potential factors that may impact the economics of his future plans.
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