self employment tax

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gdubs12345

gdubs12345

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Oct 2, 2006
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I have to pay about 40% on what i made last year, thanks to self employment tax. Ive never heard about it before today and it added another 10% on what i have to pay.
Im suprised ive never heard anyone here talking about it, because most people here are self employed.
That is such a bunch of bullshit.
 


I just got back from my accountants and I totally agree. In 2006 all I had was w2's so all these 1099's and the self employment tax was a big, awful surprise. The crazy part is AOL/Userplane listed their payment to me as 'royalties' so the self employment tax doesn't apply. Other advertisers like Google don't do this, even though it's the same service I'm providing. WTF? I asked the accountant if I could just list them all as royalties (at least the ones where I didn't receive a 1099 like international advertisers), and she said no...
 
Move to Dubai or Philippines and you won't have this tax problem. You'll just have some other problems that you won't like. :)
 
Suspect we have another person who is running internet biz with out legal corp structure tsk tsk you learn lesson once then you get a corp and tax id for the next year its like taking medicine you do it once and your healed !
 
You are in the US and pay 40%?? Fuck! I thought you guys prefer lower taxes and less spending. I know the current regime has been spending like crazy, but didn't realise they taxed ya so much.

That's the top rate here and we get all those lovely public services that Americans seem so reluctant to have paid for from their taxes.... Where the fuck is that money going?

Would it be worth your while setting up a company? Not sure if it's the same over there but here paying yourself a basic salary then the rest as dividends will save you a bit (not as much as it used to though). Does that work in the US?
 
its pretty crazy because 40% is the same amount that a person who made 1 million a year would pay.
My accountant says i need to set up an s-corp, whatever that is, so i can avoid this tax.
 
gdubs12345 said:
its pretty crazy because 40% is the same amount that a person who made 1 million a year would pay.
My accountant says i need to set up an s-corp, whatever that is, so i can avoid this tax.
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Agreed, I'm paying over 60% of my adjusted gross income, it's insane. My buddy actually has a negative AGI and he has to pay a couple grand. :error:
 
I'll say it again, get a corporation. It cost like $300. It will be the best investment you ever made. I hear nevada is nice..
 
do any canadians have advice for business structure?
from what i gather here if you incorporate you are double taxed. corporate tax, then dividends or salary are subject to income tax. provincial & federal.
 
_arms_ said:
do any canadians have advice for business structure?
from what i gather here if you incorporate you are double taxed. corporate tax, then dividends or salary are subject to income tax. provincial & federal.
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If you incorporate you pay a maximum of 19% in Canada on company profit.

So if your company does $1,000,000 in a year and you pay yourself $100,000, $900,000 will be taxed at 19%, and the $100,000 at whatever tax bracket you fall in.

This is apposed to just paying the tax bracket on $1,000,000 which I assure you is a helluvalot higher than 19%.

Edit: Hire an accountant and they will explain it all to you and get the ball rolling.
 
Rasher said:
If you incorporate you pay a maximum of 19% in Canada on company profit.

So if your company does $1,000,000 in a year and you pay yourself $100,000, $900,000 will be taxed at 19%, and the $100,000 at whatever tax bracket you fall in.

This is apposed to just paying the tax bracket on $1,000,000 which I assure you is a helluvalot higher than 19%.

Edit: Hire an accountant and they will explain it all to you and get the ball rolling.
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thanks. does make a big difference.
but it's still ass rape.
 
This isn't legal or tax advice. Get a lawyer or CPA for that...

Like your accountant has said, get an S-corporation or an LLC (if LLC, make sure it's taxed as an S-corp).

What happens is this-

Your current situation, dumbed down greatly for the purpose of easy numbers:

Income: 50,000
Income tax percentage: 25%
Self-employment tax: 15%
Total tax percentage: 40%
Amount you pay 40% taxes on: 50,000
Taxes: 50,000 * 40% = 20,000

What you could do with an S-corp:

Income: 50,000
Pay yourself 25,000 salary for the year
Other 25,000 is profit for the company
25,000 salary gets hit with income tax + self-employment, ie 40%
25,000 company profit hit only with income tax, don't pay s/e: 25%
25,000 * 40% = 10000
25,000 * 25% = 6250
Total taxes = 16,250 (a savings of $3,750)

What will it cost you to do this? In my state it's $105 to create an LLC (don't pay a stupid lawyer to do it. They'd charge $600, and all they do is go to the state's website, fill out an online form and have it done in 15 minutes. Find out how to do this yourself and save the money).

$105 spent to save $3750, or more. Just go do it.

One other thing: be sure to pay yourself a salary throughout the year. If you don't know how ask your CPA or Google it. Reasons why you need to do this:

1) If you don't pay yourself a "reasonable salary", the IRS will get pissed that you're saving too much by not paying any s/e taxes.

2) If you don't have any W2 income, most lenders and bankers who are living in the stone-age are scared to give you a loan or a mortgage because you're too risky, unless you've been in business for 2 years +. So you have your own company pay you a salary and give you a W2. They don't really care if you happen to own the company that issued the W2 and wrote the paychecks, so long as you have one of those magical forms. Stupid? Yep. Welcome to the banking world.
 
You must pay quarterlies in your second year or you will get penalties. With an S-Corp you can't pay all dividends, your salary must be reasonable.
 
BigWill said:
I'll say it again, get a corporation. It cost like $300. It will be the best investment you ever made. I hear nevada is nice..
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What are all the fees that you pay to the state for having an S-Corp?

I'm trying to find a CPA to maybe setup an S-corp but, I'm getting a few different answers. Some people are just mentioning $300 to the state and $50-$75 for the CPA to set it up.

One person mentioned,

annual franchise tax return to prepare and file with the state, and an annual tax return for the S-corp along with your personal tax return at a cost of $300-$600 per year, preparation of quarterly payroll income tax


When would you suggest somebody to file an S-Corp? What if you're only making about $2000 in profit a month?

Is it ever too late in the year to file an S-Corp? Should I wait to see if I start making more? If it's only going to cost $350 to save money on the self-employment tax I think it would be worth it, since currently I'm taking out 30% in taxes. I'm just not sure of all the other fees involved. Some CPA's might not be telling me all the fees involved just to get my business.
 
I had an s-corp, but the reason was for personal financial protection. If you don't need this protection, it may be wise to avoid it. Quarterly filings and other corp fees drive the cost of having a corp up. In my state, executives are considered employees and must be covered under workers comp, unemployment, etc. Closing the corp actually saved me quite a bit of money.
 
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