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How many people out there pay quarterly taxes, and what is the method for doing so?
anyways, have anyone considered using a corporation(or other biz entities) so that you only pay corporate taxes of whatever is maintained as profits? corporations are tax at a lower percentage, if I'm not mistaken about 25% as oppose to upto 30 or 40% for individuals making $100K/year? You can just issue smaller checks to yourself as salary and maintain the rest of the profits in the corporation.
And one major advantage of using a corporation is to protect yourself from liabilities...
And if you use a corporation, can you use the corporation to invest on some other business, maybe like rental properties?
It seems to me that you don't have to pay yourself too much, you can legally use a corporation to do things for you like maybe, buy a rental property(that you can rent to yourself) or lease a car and write it off. Can someone confirm that this can be done(well I'll probably check with my accountant soon)?
Another thing is, maybe you can also create pension plan for yourself with numbers higher than a regular sep ira, anyone done this before?
Anyways, just wanted to throw this out there...
your salary is pretax on the corporation level, so whatever you retained should be something you're not planning to pull out anytime soon but more for other investments. But if you think about it's not the money under your name that's important but it's the money you can spend(on other things rather than taxes) or have control of is what's important.
the thing with the irs audit is that you need to make sure you are doing everything within the law not trying to scheme the government of not paying taxes with illegal activities. I would recommend to work out the details of your corporation with your accountant & lawyer. You spend probably $5000 a year with these professionals but the taxes you save could be several tens of thousands of dollars.
the government introduce biz entities for the rich to shelter their money since the government is operated by mostly the rich... :) And in my opinion corporations are created so that the sophisticated rich can keep the profits, generate good income and eventually hire other people thus creating jobs and the likes to improve operation, so in the end if you think about it, it benefits the government more...
Such advice is not cheap, until you see how much it might save you.
Creating an LLC or similar legal structure means you pay taxes only on what you personally take from the business.
Also. to say your accountant arranged with the IRS to pay quarterly, well, I suppose in a way. However, that is what is legally required. You must file quarterly or else risk backtaxes, interest, penalties and in severe cases, criminal liability. Furthermore, not paying has all kinds of negative implications, such as in getting a mortgage you will have to say whether you owe the feds any money for backtaxes. Get caught in a lie and it's bank fraud.
Incorporating is not a way to save tax dollars. It's a way to pay more. You are double-taxed, once at a corporate level and once at the personal level when you withdraw funds. There are some tax breaks you can take advantage of so it's not as bad as it might seem at first, but it's bad.
I wholeheartedly agree with you diamondgirl... double taxation happens if you pay yourself via dividends... but if you pay yourself via salary and bonuses aren't this pretax dollars at the corporation level? Aren't they counted as corporate expenses?
well there's advantages and disadvantages of different enttities and only a tax accountant/preparer/lawyer would know more about these things in detail.
Incorporating is not a way to save tax dollars. It's a way to pay more. You are double-taxed, once at a corporate level and once at the personal level when you withdraw funds. There are some tax breaks you can take advantage of so it's not as bad as it might seem at first, but it's bad.
For instance, if you make $100,000 per year in California, you're going to pay a lot as an individual (federal, state, local, and self-employment). If you earn $1,000,000 per year in Washington state, you're in the top bracket federally, but you have no state income tax and your self-employment tax caps out at around $90,000 in earnings. In this case, there might not be much of a tax advantage to incorporating.
I agree whole-heartedly with Mike once again.
I have already done a bit browsing around at off shore information and really, the savings are great! Get taxed in Canada or America at 30-50% or get taxed on the islands at 5% or lower. Not a hard decision.
You can pay someone under $5000 to get it all setup for you. Basically this person is very knowledgeable with offshore tax laws, and your countries tax laws, and gets you set up properly.
The one thing I am wondering is if you do the offshore thing, do you have to spend a certain amount of time in the specific country per year?
All the Best,
C.K.
Corporations are the best way to save on taxes. If you've done your homework, then you'll know that pulling out distributions from an S-Corp is NOT taxed on a corporate level, yet the only thing taxed is the total profit of the company, after it flows onto your personal return.
How is that any different than just not incorporating and paying normal income tax? I don't see how you "save on taxes" this way. Unless you're talking about being able to deduct business expenses.
Personally, I think an LLC is the way to go.
I have already done a bit browsing around at off shore information and really, the savings are great! Get taxed in Canada or America at 30-50% or get taxed on the islands at 5% or lower. Not a hard decision.
For some people, who don't like freeloading, that WOULD be a hard decision. Personally, I wouldn't feel comfortable living in the US, reaping the benefits of other people's taxes, from public libraries to protection from terrorism, and paying no tax myself.
Of course, ethical standards vary. To each his own.
How is that any different than just not incorporating and paying normal income tax? I don't see how you "save on taxes" this way. Unless you're talking about being able to deduct business expenses.Personally, I think an LLC is the way to go.
LLC and taxed as an SCorp, that's the best way to go.
LLCs have largely replaced the S-Corp as the organization of choice for the kind of thing we do, although I understand the tax treatment is the same. But I think LLCs give better legal protection. Talk to a lawyer or read up if you're really interested.
For some people, who don't like freeloading, that WOULD be a hard decision. Personally, I wouldn't feel comfortable living in the US, reaping the benefits of other people's taxes, from public libraries to protection from terrorism, and paying no tax myself.Of course, ethical standards vary. To each his own.
Its not a question of ethics... The government has been freeloading off the people for years.
As far as I am concerned, until I see tax dollars going to something useful I don't want to put my own money into the coffers :)
BTW, where I live they have even shut down the hospital!
All the Best,
C.K.
[edited by: GuitarZan at 10:06 pm (utc) on April 29, 2005]
btw, I did thought about the LLC(or SCorp w/ tax pass through election - tax on the individual level) and a LLC(CCorp non-pass through election tax at the corporate and tax at the individual level when dividends / distributions are made to the individual).
Anyways, please correct me if I'm wrong or way off... I'm exploring 2 options...
a)LLC passthrough - the thing I'm not so happy about with LLC passthrough is you don't have a choice by the end of the year all profits needs to be declared as the owner's profit which is tax at your bracket if you make above $100K you're probably in the 35% bracket.
b)LLC non-passthrough - the thing I'm not so happy about non-passthrough election is that you will be taxed twice if you issue distributions or dividends.. but the good thing about this is you don't get taxed twice on payments made as salary or bonuses... so can't you just pay yourself bonuses or salary and not do any type of dividen distribution? and whatever you want to reinvest just retain it in the LLC and it get's taxed at the 25%(or whatever the tax level is) level?
any thoughts? Not sure if I was clear with my explanation...
You save taxes because you can avoid double FICA. FICA is 15.3% for the self-employed. Let's say you make $100K. You are required to pay yourself a "reasonable" salary. You could justify something like $30K in salary. In an S-Corp you are taxed pass-through so you're taxed on all $100K as far as federal and state tax (for most states). However, you only have to pay the 15.3% extra tax on the $30K. As a sole proprietor, you pay 15.3% extra on all $100K! As a S-Corp, you distribute the remaining $70K as dividends.
So, as an S-Corp you save 15.3% of $70K on the above scenario...let's see that is about $10,500.
How is that any different than just not incorporating and paying normal income tax? I don't see how you "save on taxes" this way. Unless you're talking about being able to deduct business expenses.
The main difference to me is that you don't pay self-employment tax (FICA) on S-Corp earnings. There may be a few business expenses that S-Corps can take but sole proprietors can't, but that's pretty minor. Also, make sure to check to see how your state taxes S-Corps.
I'm not 100% sure, but I think pass-through income from LLC's is still subject to self-employment tax.
I might have to look into tax rates in the islands. I wouldn't mind living there, especially if I get to keep almost twice as much of my money.
I might have to look into tax rates in the islands. I wouldn't mind living there, especially if I get to keep almost twice as much of my money.
Nice. I think as one guy mentioned, the US still taxes you wherever you are... Canada may too. I think in that case you may have to denounce your citenzenship just to legally go to one of the islands (not sure).
They really don't want us getting much better rates :)
All the Best,
C.K.
Also, make sure to check to see how your state taxes S-Corps.
the US still taxes you wherever you are
Greedy... How else are they going to fund the war in Iraq?
Agreed Rick.
And besides the point, I don't really think the government has the right to know half of what it does about any individual.
The government not knowing about my money, and not being to collect on it (save for buying goods) will be one more thing to not deal with.
For anyone that thinks that doing off shore stuff is treason and immoral - Think about the above again.
All the Best,
C.K.
And ethics - I'll leave to those of you who enjoy arguing.
