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Welcome to this web site. Am I being double taxed?? Good question.
There is an Accountant who posted in the last 2 or 3 days who said
FREE income advice. Look for her posting.
If i come across her posting, I will get back to you.
Hopefully other accountants will answer you.
First of all let me say that I'm not an accountant...just a retired business man. Therefore, the advise I offer should be confirmed with your accountant. (*You DO have an accountant, don't you?)*1 of 1 people found this helpful
I realize this seems a bit confusing. But it's really not.
If you treat the funds that you have used to start your business as a personal loan to your business. There is no tax to your business on the borrowed money. There IS tax on earned income. Therefore, as you earn income, and use part of it to pay back your personal loan, you will pay tax on (NET, not gross) profit.
By March 15th, you must file an "S" corp income tax return. Your personal tax return is separate, but can be sent in at the same time, or a month later. There will be no Tax to your (personal) self on the money that you receive from your business as a paid back loan (since you said it was an interest free loan). If it was not interest free, your (personal) self would have to pay tax on the interest. Of course there IS tax on the salary you pay yourself, and on the business (net) profit.
Incidently; if you treat this as an investment (instead of a loan) to purchase stock; and then if your business later fails, and you (personally) loose money with this investment; you can deduct your losses against any othern personal income (on your personal income tax form.
May I add...If you don't have an accountant, I strongly (*strongly*) recommend that you interview a few and select the one most ideal for you and your business. This is REALLY a necessary business expense. Because you are on a tight budget (as everyone is at start-up), you can probably utilize Quickbooks. If you aren't sure how to set up your accounts, your accountant can advise you. as time goes on, you can adjust these accounts. That way, you can do your own book keeping and use your accountant just for occasional advise, as needed,, and for doing your quarterlies and year-end taxes.
How long have you been in business??1 of 1 people found this helpful
Everybody in Business should have an Accountant, A Lawyer and
maybe an insurance Agent.
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If you W-2 yourself for the entire net profit of the corporation, you would pay more than a sole prop by the total of SUTA and FUTA taxes. However, you will save on SE taxes if your W-2 is less than the net profit from the corp. In addition, you will not pay SE taxes on any employer retirement contributions like a SEP or any self insured health insurance deductions. In the long run, you will pay less in taxes than a sole prop as long as the corp makes enough for you to draw a living wage and some benefits.
Even if you can't get a group plan, you can establish a benefit plan somewhere between Sections 105 and 106 to reimburse yourself for the premiums and take the SE Health Insurance deduction.
I would paste in the Treasury Reg Sec 1.106-1, but trying to paste to this site always freaks out my pop up blocker.
Basically, once the corp earns enough for you to take a salary then you will start making tax deposits at your bank with Form 8109-b or by EFTPS (recommended for convenience). By the 15th of the following month, you will need to deposit the 15.3% FICA + Fed withholding for your payroll the prior month. Once you exceed $50K in total taxes for a year, they will tell you to make deposits more often.
If you keep the books correctly and file a tax return consistent with the books you will not be double taxed. Any investment in the corporation would operate like an investment in any public company. It would not be taxed but you would also not get a deduction for it. It would reside in the equity section of the balance sheet. Any S-corp income after business expenses would be taxable to you on your individual return. You are allowed to take out tax free distributions from the S-corp equal to S-corp income from which you would then theoretically pay the tax and put the rest in your pocket. Be careful that you pay yourself a reasonable salary for the services you provide the S-corp. The reason for this is that s-corp income shows up on your individual return on Sch E and therefore escapes self-employmet tax. IRS will allow that only if they feel your salary is reasonable for your services.
Best advice... get in contact with an accountant. I am a CPA in NY and would be willing to help you with any specific bookkeeping or tax issues.