- My Forums
- Tiger Rant
- LSU Recruiting
- SEC Rant
- Saints Talk
- Pelicans Talk
- More Sports Board
- Fantasy Sports
- Golf Board
- Soccer Board
- O-T Lounge
- Tech Board
- Home/Garden Board
- Outdoor Board
- Health/Fitness Board
- Movie/TV Board
- Book Board
- Music Board
- Political Talk
- Money Talk
- Fark Board
- Gaming Board
- Travel Board
- Food/Drink Board
- Ticket Exchange
- TD Help Board
Customize My Forums- View All Forums
- Show Left Links
- Topic Sort Options
- Trending Topics
- Recent Topics
- Active Topics
Started By
Message
Does an S-Corp make sense for my wife? Is it even allowable?
Posted on 5/30/19 at 2:49 pm
Posted on 5/30/19 at 2:49 pm
My wife is contemplating changing jobs and doing freelance contracted journalism work.
We are trying to determine the effective pay difference between the new work, and her current job. In calculating this, it’s clear that the SE taxes she would be paying for self employment income are pretty rough. One way around this is an S-Corp. Would this be worth it and is it even allowable for her circumstance? It’s different from a business, it’s just my wife doing contract writing/editing for companies.
There also isn’t a lot of expenses she would incur. It would basically just be deductible household expenses from her office. I’ve basically determined the following.
On a schedule C
40,000 income
(1,400) expenses (this only includes 1/7 of our annual utilities, RE tax, mortgage interest. Plus $500 for misc. expenses)
$38,600 taxable income
Fed tax (12%) (4,632)
SE tax (15.3%) (5,906)
Net after tax of $28,062
How would this look if it was an S-Corp? Would we save money? Is it even allowed?
We are trying to determine the effective pay difference between the new work, and her current job. In calculating this, it’s clear that the SE taxes she would be paying for self employment income are pretty rough. One way around this is an S-Corp. Would this be worth it and is it even allowable for her circumstance? It’s different from a business, it’s just my wife doing contract writing/editing for companies.
There also isn’t a lot of expenses she would incur. It would basically just be deductible household expenses from her office. I’ve basically determined the following.
On a schedule C
40,000 income
(1,400) expenses (this only includes 1/7 of our annual utilities, RE tax, mortgage interest. Plus $500 for misc. expenses)
$38,600 taxable income
Fed tax (12%) (4,632)
SE tax (15.3%) (5,906)
Net after tax of $28,062
How would this look if it was an S-Corp? Would we save money? Is it even allowed?
7
Posted on 5/30/19 at 3:01 pm to Tigerfan56
quote:
There also isn’t a lot of expenses she would incur. It would basically just be deductible household expenses from her office.
I have zero to offer on the S Corp front, but I just wanted to say that you're probably underestimating her expenses. She can deduct work related training and education, with its attendant travel: conferences, meetings, professional group meetings. She can deduct professional memberships, like SPJ or IACP or whatever flavor to which she belongs. She can deduct any materials purchased to help her complete her assignments, like books or other research materials for background information/research, equipment like a laptop, tablet, printer; her internet connection and/or any database or news service subscriptions; her quickbooks or other accounting software subscription, a percentage of her cell phone service......
Posted on 5/30/19 at 3:23 pm to hungryone
Is there still a home office deduction?
Posted on 5/30/19 at 3:34 pm to Tigerfan56
In an S Corporation you are still supposed to take reasonable compensation in the form of salary, which is still subject to SS and Medicare. I think based on the numbers you provided you would have a hard time arguing with the IRS that her entire profit shouldn’t be considered this reasonable salary.
Posted on 5/30/19 at 3:59 pm to hedgediver
quote:
In an S Corporation you are still supposed to take reasonable compensation in the form of salary, which is still subject to SS and Medicare. I think based on the numbers you provided you would have a hard time arguing with the IRS that her entire profit shouldn’t be considered this reasonable salary.
I think you’re right. That’s one of the reasons I was debating if an S-Corp even made sense.
Posted on 5/30/19 at 4:41 pm to hedgediver
quote:
n an S Corporation you are still supposed to take reasonable compensation in the form of salary, which is still subject to SS and Medicare
You would have to file quarterly payroll tax returns, w-2 and an annual S-Corp return. That costs.
Posted on 5/30/19 at 4:52 pm to Tigerfan56
The way an S Corp is "supposed" to work, is that the income you earn from "managing/owning" your business isn't subject to payroll tax (aka S/E tax, kinda), while the income you earn from your actual personal efforts in the business, is subject to payroll tax.
Having a S Corp for a company that does personal services (like journalism) and no employees, is pretty much a scam. I'm not going to say people don't do it cause they do. And your odds of getting audited are low (the audit would be on the amount of your "salary" which is subject to payroll tax, and if it's "reasonable".
But if you were to get audited, you would have almost nothing to stand on, to justify that something less than 100 percent of her net earnings isn't truly wage compensation to her.
Not to mention, any small tax savings will be eaten up by payroll costs and the costs of another income tax return and other potential compliance costs.
When your wife is figuring out how much to charge for these freelance jobs, she needs to keep the S/E tax burden in mind.
Also, as others have said, I would focus on documenting and taking every possible business deduction, as that reduces both income tax and S/E tax.
Also, state taxes?
Having a S Corp for a company that does personal services (like journalism) and no employees, is pretty much a scam. I'm not going to say people don't do it cause they do. And your odds of getting audited are low (the audit would be on the amount of your "salary" which is subject to payroll tax, and if it's "reasonable".
But if you were to get audited, you would have almost nothing to stand on, to justify that something less than 100 percent of her net earnings isn't truly wage compensation to her.
Not to mention, any small tax savings will be eaten up by payroll costs and the costs of another income tax return and other potential compliance costs.
When your wife is figuring out how much to charge for these freelance jobs, she needs to keep the S/E tax burden in mind.
Also, as others have said, I would focus on documenting and taking every possible business deduction, as that reduces both income tax and S/E tax.
Also, state taxes?
This post was edited on 5/30/19 at 4:54 pm
Posted on 5/30/19 at 7:44 pm to Tigerfan56
At that income, I would consider forming a 50/50 partnership. She is general partner subject to se tax. You are limited partner with no se tax.
Just saved you half of your se tax. Let me know where to mail the invoice.
Just saved you half of your se tax. Let me know where to mail the invoice.
Posted on 5/30/19 at 8:38 pm to Tigerfan56
We set up my wife’s side job as a C Corp taxed as an S. Can’t speak to the tax savings but something to research.
Posted on 5/31/19 at 7:05 am to Verdi
quote:
We set up my wife’s side job as a C Corp taxed as an S. Can’t speak to the tax savings but something to research.
So you’ve set this up without considering the tax consequences? For the love of Pete, why would you do that?!?!
Posted on 5/31/19 at 7:15 am to Verdi
quote:
We set up my wife’s side job as a C Corp taxed as an S.
You converted a C into an S. You wouldn’t set up a C taxed as an S.
Posted on 5/31/19 at 8:18 am to SippyCup
Article
“C corporations are subject to double taxation, but methods of reducing corporate taxable income, such as increasing compensation to shareholder-employees, all have their own limitations.
One method is to elect to be taxed as an S corporation, eliminating double taxation without the need to liquidate the corporation, but it may not be a solution for all types of corporations, due to restrictive rules on corporate structures, classes of stock, types of permitted shareholders, and other limitations.”
Maybe I am missing something or it could have changed recently
We understood our situation and made the choice but my statement was I have no clue the tax implications on the posters situation.
“C corporations are subject to double taxation, but methods of reducing corporate taxable income, such as increasing compensation to shareholder-employees, all have their own limitations.
One method is to elect to be taxed as an S corporation, eliminating double taxation without the need to liquidate the corporation, but it may not be a solution for all types of corporations, due to restrictive rules on corporate structures, classes of stock, types of permitted shareholders, and other limitations.”
Maybe I am missing something or it could have changed recently
We understood our situation and made the choice but my statement was I have no clue the tax implications on the posters situation.
Posted on 5/31/19 at 10:06 am to Tigerfan56
Doesn’t make sense in the slightest, and is potentially fraudulent.
Posted on 6/3/19 at 12:37 pm to Tigerfan56
NO
END THREAD
END THREAD
Page 1 of 1
Popular
Back to top
Follow TigerDroppings for LSU Football News