A little contradiction to previous advice about taxes
A little contradiction to previous advice about taxes
It is not a good idea to pay you and your wife a decent salary. This is very tax-inefficent, because you will have to pay both company and personal FICA and Medicare on both, which will amount to 20%, as well as income tax. On the otherhand, the IRS frowns on paying yourself nothing and taking it all as a distribution of profit, on which no FICA or Medicare is paid. A happy medium is the order of the day:
1) All my CPA friends say an S-corporation is the way to go. You get limited liability with that as well as tax advantages, so your personal assets are not at risk.
2. Make you and your wife shareholders - equal shareholders if your marriage is solid.
3. Don't pay yourselves anything until you know how much profit the company is going to make in the year.
4. Make sure you take everything that your accountant says is a legitimate expense, so that your taxable profit is no higher than it should be.
5. Then split the anticipated profit into two parts: Use one part to pay the shareholders a "distribution" ( which must be an equal amount per share, calculated by dividing the amount by the number of shares issued); then use the second part to pay yourselves incomes plus FICA plus Medicare. The CPA will calculate it all for you. You will thereby avoid paying the 20% FICA + Medicare on the distribution part.
There arew some timing requirements about when you take income and pay FICA. Ask a CPA how to estimate how much you should take per month. I don't think you can leave it all to the end of the accounting year, but you can estimate on the low side and pay yourselves an end of year bonus to use up the slack.
You will be thousands of $$$ a year better off this way.
A little contradiction to previous advice about taxes
It is not a good idea to pay you and your wife a decent salary. This is very tax-inefficent, because you will have to pay both company and personal FICA and Medicare on both, which will amount to 20%, as well as income tax. On the otherhand, the IRS frowns on paying yourself nothing and taking it all as a distribution of profit, on which no FICA or Medicare is paid. A happy medium is the order of the day:
1) All my CPA friends say an S-corporation is the way to go. You get limited liability with that as well as tax advantages, so your personal assets are not at risk.
2. Make you and your wife shareholders - equal shareholders if your marriage is solid.
3. Don't pay yourselves anything until you know how much profit the company is going to make in the year.
4. Make sure you take everything that your accountant says is a legitimate expense, so that your taxable profit is no higher than it should be.
5. Then split the anticipated profit into two parts: Use one part to pay the shareholders a "distribution" ( which must be an equal amount per share, calculated by dividing the amount by the number of shares issued); then use the second part to pay yourselves incomes plus FICA plus Medicare. The CPA will calculate it all for you. You will thereby avoid paying the 20% FICA + Medicare on the distribution part.
There arew some timing requirements about when you take income and pay FICA. Ask a CPA how to estimate how much you should take per month. I don't think you can leave it all to the end of the accounting year, but you can estimate on the low side and pay yourselves an end of year bonus to use up the slack.
You will be thousands of $$$ a year better off this way.