Business Advisory Services
Everything you need to help you launch your new business entity from business entity selection to multiple-entity business structures.
Everything you need to help you launch your new business entity from business entity selection to multiple-entity business structures.
Designed for rental property owners where WCG CPAs & Advisors supports you as your real estate CPA.
Everything you need from tax return preparation for your small business to your rental to your corporation is here.
WCG’s primary objective is to help you to feel comfortable about engaging with us
By Jason Watson
This KB article is outdated. Please refer to our complete Taxpayer’s Comprehensive Guide to LLCs and S Corps at-
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To get to the net-net, we prepared fictitious tax returns to get exact numbers. At $75,000 in net income an S-Corp will generally save about $3,475 in self-employment taxes. If you use WCG (formerly Watson CPA Group) for your payroll and corporate tax preparation needs, our fee will generally be about $1,200 (give or take $200 depending on your unique situation). So some of the $3,475 is lost in additional accounting expenses but you could easily save $2,200 after it is all said and done, and the extra effort is minimal.
At $100,000 you could still net out a $3,400 savings. Not bad.
Note– the savings could actually creep up to 6% or even 7% by having the S-Corp pay for your health insurance or ealth savings account (HSA). Details in other KB articles.
The savings between an LLC and an S-Corp LLC drops off at some point because what is paid as a reasonable salary is equal to or greater than the Social Security cap. For example, if your LLC earns $250,000 your Social Security contribution limit will have been reached at $117,000 for 2014. For example, if your LLC becomes an S-Corp, your reasonable salary at 50% (or $125,000) will also meet the limit.
However, you don’t pay Medicare taxes on investment income that is under the high income thresholds (over $250,000 as married filing joint taxpayers or $200,000 as a single taxpayer). However, once you trigger the high income threshold for Medicare taxes, then you pay 3.8% (an additional 0.9%) in Medicare taxes. The tax is calculated by multiplying the 3.8% tax rate by the lower of the following two amounts:
The IRS defines net investment income for the purposes of calculating the unearned income Medicare contribution tax includes interest, dividends, capital gains, annuities, royalties, rents, and pass-through income from an passive business such as S-Corps and partnerships.
So there is some Medicare savings at higher incomes, but income too high will actually cause you to pay Medicare tax on once-safe K-1 income from your S-Corp. A parabolic balancing act for sure.
Everything you need to help you launch your new business entity from business entity selection to multiple-entity business structures.
Designed for rental property owners where WCG CPAs & Advisors supports you as your real estate CPA.
Everything you need from tax return preparation for your small business to your rental to your corporation is here.
WCG’s primary objective is to help you to feel comfortable about engaging with us