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Section 199A 200k Comparison
By Jason Watson, CPA
Posted Wednesday, October 20, 2021
New day, different problem. This is an online retailer earning $200,000 in business income.
|ln||No S||S Corp||No S||S Corp|
|2||less W-2 Wages inc. SEHI, HSA, etc.||0||70,000||0||70,000|
|3||less Payroll Taxes||0||5,355||0||5,355|
|4||Net Business Income Section 199A||200,000||124,645||200,000||124,645|
|5||Adjustments to 1040 / NBI|
|6||less Social Security Tax||7,979||0||7,979||0|
|7||less Medicare Tax||2,678||0||2,678||0|
|8||less SEHI, HSA, etc.||0||0||0||0|
|9||Other Taxable Income||0||0||100,000||100,000|
|10||Adjusted Gross Income*||189,342||194,645||289,342||294,645|
|11||Itemized / Std Deductions||24,000||24,000||24,000||24,000|
|12||Taxable Income Before Section 199A||165,342||170,645||265,342||270,645|
|13||Section 199A Net Biz Income||40,000||24,929||40,000||24,929|
|14||Section 199A W-2 Wage Limit||0||35,000||0||35,000|
|15||Section 199A Taxable Income Limit||33,068||34,129||53,068||54,129|
|16||Section 199A Benefit||33,068||24,929||40,000||24,929|
|17||Marginal Income Tax Rate||24%||24%||24%||24%|
|18||Income Tax Benefit from Section 199A||-7,936||-5,983||-9,600||-5,983|
|19||plus Self-Employment Tax||21,315||0||21,315||0|
|20||plus Tax on Line 12 Delta (above)||0||1,273||0||1,273|
|21||plus Payroll Tax||0||10,710||0||10,710|
|22||Net Tax After Section 199A Benefit||13,379||6,000||11,715||6,000|
|23||Net S Corp Benefit $||7,379||5,715|
*includes the S Corp W-2
There are several notables, takeaways and explanations-
Assumptions are $200,000 in business income prior to $70,000 in reasonable shareholder salary. Married taxpayer with $24,000 as a standard deduction (Line 11), with and without an additional $100,000 in taxable income (Line 9) such as a spouse or pension.
Note the spreads in Section 199A deduction benefit on Line 16 and the subsequent income tax benefit from Section 199A on Line 18. This is an interesting example since the extra household income increases the Section 199A deduction significantly.
However, when self-employment taxes and payroll taxes are added back, there is still a material savings even when Social Security limits are reached under the non-S Corp scenario.
If this example had $10,000 in self-employed health insurance premiums the net S Corp benefit (Line 23) would be $9,483 without additional household income (Line 9) and $7,099 with additional household income of $100,000.
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