[TryNLearn]

Hello!
I am an S-Corp (single owner). I was paid by my client since Oct. 2007 and I have registered with GA DOL, DOR etc. I think I have to pay w/h by Jan. 15, 2008.

1. I transferred money two times in the last 3 months into my personal account. Is this a salary or "draw"? Am I better off without payroll?

2. Do I pay taxes or w/h on this by Jan. 15, 2008?

3. How much is it (ballpark) in Atlanta GA area for a CPA - I have two or three transactions per month and have all my accounts in order...

Thanks!
:confused:

[AtlantaTaxExpert]

TNL:

As I stated in the PM, you should use a enrolled agent instead of a CPA if your only concern is taxes.

An EA knows his subject forward and backward, but charges about half of what a CPA will charge.

1 & 2) Personally, I would treat it as salary. If you do NOT draw a salary, you will have to show the money either as a dividend from the corporation or as self-employment income. Which one to choose is dictated by the total profit of the S corporation versus what the normal salary of the CEO of such a corporation would be.

3) Expect to pay a CPA between $1,000 - $3,000 each year.

[MukatA]

TryNLearn:
Do you have a single owner S-corp or a LLC? S-corp requires many extra filings.

First you must do S-corp income tax return From 1120S and provide Form K-1 (Form 1120S) to the share holder, state Franchise or Income Tax return in the states where the corporation is operating and the corporation return where the corporation is registered. The due date for these returns is March 31, 2008.

When you get K-1, then will complete your personal income tax return Form 1040 along with schedule C (Form 1040) to report your business income. On your schedule C income you will pay SE tax at 15.3%.

Now about how much it should cost? Since it appears that you don't have many income entries and deduction entries, all your S-corporation returns should cost you around $500 for CA/EA charges. Then you may have to pay minimum Franchise tax to the states where you are operating. For example, in CA the first year is free and then it is $800 every year.
Then you will pay for your individual tax return.

[AtlantaTaxExpert]

MukatA:

Good post, though I do NOT think a Schedule C would be required (the SE computation can be done without the Schedule C).

Of course, the SE may not even be required. It depends on the amount of money involved.

Eventually, TNL needs to be hired by the corporation and draw a salary that approximates what other professionals are paid for whatever he is doing. That way, the FICA taxes will be collected and paid by the corporation.

[MukatA]

Yes, S-corporation does not do schedule C that is what I said. Also I don't think that corporation pays FICA taxes as corporation is not an individual person. Also if a corporation earns couple of millions, then what happens to social security tax cap of $97,500 income.

Once a share holder gets K-1 income, then he/she will report this on Form 1040 and do schedule C for the income of K-1 (except for dividends).

[AtlantaTaxExpert]

Again, the Schedule C is NOT needed. The income can come directly from the Schedule E Page 2.

Remember that the IRS considers the S corp to be a SEPARATE tax entity. If it employs TNL as a employee, it would file the employment taxes (FICA, FUCA, wrokmen's comp) under its tax ID number and pay the employer half of the FICA taxes.

It all effectively comes out of TNL's pocket, but it is CLEANER this way.

[TryNLearn]

Guys (ATE and MukatA), thank you so much for additional information.

MukatA:

Of course, the SE may not even be required. It depends on the amount of money involved.

Eventually, TNL needs to be hired by the corporation and draw a salary that approximates what other professionals are paid for whatever he is doing. That way, the FICA taxes will be collected and paid by the corporation.

For whatever "she" is doing;-) I do computer programming.

1. Does computer programming qualify as personal services corporation? (Whopping 35% tax rate:eek: I am editing and deleting this part of the comment as I think 35% is only for C Corp, for a QPSC)

2. Can my S Corp pay FICA taxes - both halves - at the same time? (ATE mentioned it will be cleaner if it paid its half)

3. ATE also mentions "SE may not even be required". The amount is roughly $8000 that I drew over 3 months and $5000 that will qualify as distribution (terminology may be wrong here - but this is the amount that will go in my Schedule SE?

Again, thank you very much to both of you - for taking your time to answer!
TrnNLearn.:(

[The Texas Tax Expert]

There seems to be quite a deal of confusion in this thread.

The S Corporation is a pass-through entity. You are the sole shareholder so all income of the S Corporation will pass through to you and you will record it all on your tax return (not just the drawing component).

If you are doing the work for the S Corporation, you are a shareholder-employee and must pay yourself a reasonable salary. This will be subject to payroll taxes.

So you will have two things: salary (which needs to reflect the industry norms) and the pass through income of the corporation.

[TryNLearn]

There seems to be quite a deal of confusion in this thread.

The S Corporation is a pass-through entity. You are the sole shareholder so all income of the S Corporation will pass through to you and you will record it all on your tax return (not just the drawing component).

If you are doing the work for the S Corporation, you are a shareholder-employee and must pay yourself a reasonable salary. This will be subject to payroll taxes.

So you will have two things: salary (which needs to reflect the industry norms) and the pass through income of the corporation.

I am sorry that this was confusing. I understand that all S corp's income will be accounted as: (a) income that is listed in W2 as my salary (if any) will be taxed at my tax-rate; (b) rest of the income will be pass-through listed in my tax return through (I think) Schedule SE.

I still have these questions:

1. Does computer programming qualify as personal services corporation?

2. Can my S Corp pay FICA taxes - both halves - at the same time? (ATE mentioned it will be cleaner if it paid its half)

3. ATE also mentions "SE may not even be required". The amount is roughly $8000 that I drew over 3 months and $5000 that will qualify as distribution (terminology may be wrong here - but this is the amount that will go in my Schedule SE?

Thanks!

[The Texas Tax Expert]

The Personal Services Corporation situation applies to a C Corp. The idea is to stop people sheltering income in the C corp and getting lower tax rates than their marginal rate.

Your S Corp income will all flow through.

Your Wages/salary will be subject to payroll taxes, just as if you were paying any employee. The emphasis should not be on the amount of your "drawing" but rather on what an appropriate salary should be. So, assume you have net income in the S Corp of $100,000, then say a reasonable salary would be $60,000, you have $60,000 salary (subject to payroll tax) and $40,000 ordinary income (on which you pay no self-employment tax).

You also need to note that if the corp is providing fringe benefits, there are issues to consider.

[AtlantaTaxExpert]

I agree with ALL that TTE says. However, I reiterate that TNL needs to get a tax professional (EA or CPA) to do his return.