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Originally Posted by Tran
I'm self-employed  And don't people who work for companies pay 50% in taxes?  |
Actually, no, people who work for "companies" don't necessarily pay 50% in taxes. S-Corps were created by the IRS to be very similar to LLCs, in that any employee must make a "reasonable wage", and the rest can be taken out in a disbursement, much like a dividend. But, there is no corporate tax for S-Corps.
The S-Corp has an added benefit in that the disbursement is not taxed as a wage, thus no social security or unemployment type tax is taken out, though like an LLC it will flow to your individual tax return so you will still end up paying fed and state income tax on it. Like you do on income from interest or a dividend from a stock you own.
Note, from what I understand the IRS has no indications on what a "reasonable wage" is. I've been told about S-Corp owners that say the only indication of a "reasonable wage" from any taxing body is minimum wage, and thus only pay themselves minimum wage and take the rest in a disbursement. Though, IMHO, this behavior is just asking for an audit.
On the question of 'Is an S-Corp owner self-employed?' I say 'No.' the IRS says this at irs.gov/businesses/small/article/0,,id=115041,00.html
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You are self-employed if any of the following apply to you:
* You carry on a trade or business as a sole proprietor;
* You are a member of a partnership or limited liability company that files a Form 1065, U.S. Return of Partnership, that carries on a trade or business; or
* You are otherwise in business for yourself.
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Although, the last may be a catch-all, I don't believe that an S-Corp owner falls into this category any more than Bill Gates is self-employed.
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