319 - Thousands in Tax Savings
On today's episode of the podcast we're talking about the way you can save possibly thousands in taxes through an S Corporation. This will be a two-part series. Part one today will focus on S Corps and how they really work.
Coming soon I'll be re-launching my program "Legally Launched" which is a full course that covers LLC and S Corp formation and serves as an alternative to things like Legal Zoom or IncFile because I don't think they do a great job of helping people (hear more about that on episode 312). I also know Unf*ck Your Biz isn't for everyone and if right now you just want help with filing your LLC or S Corp, you can buy it on our site now or when we do a mini launch with live support in the coming weeks.
During this episode I'm also releasing a new offer called the S Corp Savings Calculator. It's a Google Sheet along with a tutorial video where you can punch in some numbers using our directions and it'll help you do a rough estimation of how much you could save by having an S Corporation, letting you know if it would be a good fit for you.
Get access to the calculator at https://notavglaw.com/scorpcalculator
When we are self-employed, we pay income tax and self-employment tax. if we have an employer, we only pay income tax which is an employee benefit. An S Corp helps save us Some of that self employment tax is saved when you become an S Corp.
As in escorp you are required to pay yourself a Reasonable salary regularly as opposed to paying yourself a distribution whenever you feel like Which I find is common with many people who are single member LLCs and not an S Corp.
When you have a salary, it means you pay yourself through a payroll system instead of just transferring money from your business to personal bank account. Being on payroll means that money for taxes is taken out before you are paid at that money is sent to the IRS and your state tax authority. Fun fact: you cannot be on payroll if you do not have an S Corp. When you have an s Corp, you can also give yourself distributions on top of your salary.
Non-S Corps (sole props and single member LLCs) pay income tax and self-employment tax on all profit. When you have an S Corp, only your salary is subject to both taxes and the remaining profit is only subject to income tax.
You would calculate your tax savings by finding 15.3% of your net income after salary. That 15.3% is Self employment tax that you are not paying on that net income After salary, since we only pay a self-employment tax on our salary and income tax on everything when we have an S Corp. It really comes down to how much you pay yourself in salary because the lower the salary But let's tax as we pay, but remember that you have to pay yourself a reasonable salary. You also want to make sure you are distributing the money to yourself. That's left after salary that you don't need for business savings. Because that money left in your account is still considered business profit if it is not distributed to yourself. You don't want to leave it sitting in your account unless you are trying to build business savings.
Another way to save money with an S corp is to run your health insurance through the business and not pay it out of your personal money.
Learn more about the money you can save with an S Corp at notavglaw.com/scorpcalculator