Taxes

SitPoMk

SitPoMk

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Dec 19, 2008
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Chicago, IL
I searched around the forums and there's a lot of info on this but I still have a few retarded questions to which I couldn't find answers.

It's been my first year in marketing and I've been able to scale up recently. I was stupid enough not to research this before and just thought of taxes as an afterthought. Now I'm kind of getting worried about being in the negative after paying my shit to the IRS. I didn't register an LLC or an s-corp so I basically gave my SSN whenever I submitted my W9. I'm a freshman in college, never had a job so never paid taxes so please try not to flame to oblivion.

One question that is talked about a lot but I'd still like to get more input from personal experiences. Did you set up an s-corp or LLC? Which one has better tax benefits for affiliates?

Second is the one that's bothering me the most. I know it's a stupid question but since I didn't register any sort of company am I able to write off my PPC expenses so I can only pay a % of my profit or am I going to have to pay a % of my revenue?

Hopefully this thread will be able to help others in my position too
 


Because you didn't do an llc or s-corp you'll be paying a self employment tax (12.5% if memory serves me right)....this could have been avoided......
 
Thanks I believe its around 15 now but is this the only thing I'm going to be paying or only one of the taxes that I owe. And is the self employment tax from my total income or just profits?
 
tygoldberg said:
yes you can, you're a sole proprietor.

did you keep your personal account separate from your business..if not, it's going to be tricky.

talk to a cpa
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Na they weren't separate. Planning on talking to one soon

Edit: my bad didn't realize I was signed on as my roommate lol
 
SitPoMk said:
One question that is talked about a lot but I'd still like to get more input from personal experiences. Did you set up an s-corp or LLC? Which one has better tax benefits for affiliates?

Second is the one that's bothering me the most. I know it's a stupid question but since I didn't register any sort of company am I able to write off my PPC expenses so I can only pay a % of my profit or am I going to have to pay a % of my revenue?

Hopefully this thread will be able to help others in my position too
Click to expand...

Obviously you should talk to a CPA however here's some info based on my setup:

LLC = no tax benefits. Just some form of liability coverage. You'll still be taxed as a sole proprietor and you can deduct any and all business expenses (e.g. PPC, computer purchases, internet connection, etc...).

You can still (and rightfully should) deduct your expenses as a sole proprietor.

S-Corp. Some tax benefits but not sure as my CPA always confuses me about this. Basically, it works like this:

Let's say you made 200K in profits. You would give yourself a salary of X where X is the amount of money someone would get paid to do the job you're doing. So let's say you gave yourself a salary of 100K. You pay taxes on that 100K just like you would at any other job. But... you can take the other 100K as dividends which have a lower tax rate.

Now, you might be wondering: why not pay yourself 30K and take 170K as dividends? While it would be nice, if the salary doesn't add up to an amount that someone in your position would typically get paid, the big bad IRS steps in and redistribute the income to be "fair and accurate".

So, S-Corp should be the way to go provided you're making enough (your CPA gets paid more to file returns on S-Corp than LLC).

Something to consider, but again, I could be somewhat off base and your CPA will explain this fully.
 
megatabbers said:
Obviously you should talk to a CPA however here's some info based on my setup:

LLC = no tax benefits. Just some form of liability coverage. You'll still be taxed as a sole proprietor and you can deduct any and all business expenses (e.g. PPC, computer purchases, internet connection, etc...).

You can still (and rightfully should) deduct your expenses as a sole proprietor.

S-Corp. Some tax benefits but not sure as my CPA always confuses me about this. Basically, it works like this:

Let's say you made 200K in profits. You would give yourself a salary of X where X is the amount of money someone would get paid to do the job you're doing. So let's say you gave yourself a salary of 100K. You pay taxes on that 100K just like you would at any other job. But... you can take the other 100K as dividends which have a lower tax rate.

Now, you might be wondering: why not pay yourself 30K and take 170K as dividends? While it would be nice, if the salary doesn't add up to an amount that someone in your position would typically get paid, the big bad IRS steps in and redistribute the income to be "fair and accurate".

So, S-Corp should be the way to go provided you're making enough (your CPA gets paid more to file returns on S-Corp than LLC).

Something to consider, but again, I could be somewhat off base and your CPA will explain this fully.
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While we are on this topic, I had a question I was going to ask my CPA, but since you brought it up...I do exactly as you have above to avoid a 15% self employment tax in Ohio. Now, when you salary yourself you also have to pay employer taxes too. I don't know the exact numbers off the top of my head bc I have a payroll company do that (think its like 7%) but I'm assuming salarying yourlself 50% of your profit and paying employer taxes on that is still less taxes then paying the 15% self employment tax. I know its not saving yourself 15% because you still pay the employer tax. So overall its actually what...like a 7-8% tax benefit by doing it how it was described above?
 
Megatabbers is correct, a Sub-S structure allows you avoid some of the taxes based on characterization of some income as "wages" (like a normal W-2 employee) and the bulk of it as owner "dividends" (actually called S-distributions). It doesn't make any difference at lower level of incomes, but the savings at higher income (100k+) can be pretty substantial, because you only pay the self-employment tax on a portion of your income. As long as you pay on the salary side an amount that is "reasonable" (interestingly, IRS regs never actually give a brightline rule on what "reasonable" is) then you can shift the bulk of your income to the tax-advantaged S-distribution side.
 
Caspah said:
While we are on this topic, I had a question I was going to ask my CPA, but since you brought it up...I do exactly as you have above to avoid a 15% self employment tax in Ohio. Now, when you salary yourself you also have to pay employer taxes too. I don't know the exact numbers off the top of my head bc I have a payroll company do that (think its like 7%) but I'm assuming salarying yourlself 50% of your profit and paying employer taxes on that is still less taxes then paying the 15% self employment tax. I know its not saving yourself 15% because you still pay the employer tax. So overall its actually what...like a 7-8% tax benefit by doing it how it was described above?
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Well, you are still paying the 15.3% on your salary it's just that it's split between you and your employer so it's no different than being a sole proprietor since you own the company and are employing yourself. That's not where you are saving. Your savings come from the non-earned income (i.e. the dividend distribution) where you are not paying the 15.3%.

So, I guess we are saying the same thing. You save 15.3% on the other 50% and it averages out to 7-8%. However (and I'm not sure about this) there might be additional savings somewhere in there. Also, your CPA might be quite aggressive and give you a much lower salary. I'm not sure if there are penalties if the IRS decides to redistribute the income but if they're not too hefty I'd rather ask for forgiveness and go ahead with a smaller salary than ask for permission.
 
SitPoMk said:
Second is the one that's bothering me the most. I know it's a stupid question but since I didn't register any sort of company am I able to write off my PPC expenses so I can only pay a % of my profit or am I going to have to pay a % of my revenue?
Click to expand...

This is the most important question and the answer is a most definite yes. You can deduct all your PPC costs and other AM related costs such as LPs/designers/coders ect. if you couldn't well that would just suck and make no sense.

Second don't worry that you didn't set up an LLC or S-Corp neither offers significant savings %wise if all you do is buy traffic with PPC and get revenue from networks. The biggest benefits start to come when you are doing other things as well with your business such as retirement accounts and health insurance.

Also I hope you didn't spend to much of your profit because taxes are much higher then many people that haven't paid them before realize. You can count on ~38% of your income going to the IRS and another 10% going to the state depending on where you live. I've talked to a few affiliates that were quite happy to make 100k this year or so this year but didn't realize they are going to have to pay about 40k before April 15th. This is why the IRS does deductions on W2 employees, it can be very dangerous and deceiving to get 100% of what you earn.
 
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I'm a fresh in college also, and i have a question.. (it might be dumb)

so for an example, incentaclick is located in canada, and they don't require you to send them your w9 form. Will IRS still hunt me down for not paying for those income from a company that is located in Canada?
 
lol. I was asking, if i was still required to pay tax ? and.. how would IRS know about the income when I didn't submit my w9?
 
bizkiller said:
lol. I was asking, if i was still required to pay tax ? and.. how would IRS know about the income when I didn't submit my w9?
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Why are you posting this? How can anyone be stupid enough to think it's not required? Do you really think every company that doesn't international business doesn't pay on the revenue? How about you don't pay and then see what happens. I would love to be a part of that thread.
 
bizkiller said:
I'm a fresh in college also, and i have a question.. (it might be dumb)

so for an example, incentaclick is located in canada, and they don't require you to send them your w9 form. Will IRS still hunt me down for not paying for those income from a company that is located in Canada?
Click to expand...

Maybe you'll get caught... but probably not. Our own treasury secretary Geithner "forgot" to report his overseas income before getting sworn in if you recall.
 
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