No, it doesn't make sense. Putting aside that that is unlikely to be enough as a 'reasonable salary', what do you mean that it covers 'only the tax due on revenue'... tax isn't based on revenue so what 'taxes' is this covering? And how is the rest of the income 'tax-free' as an S-Corp where corporate profits is passed through as taxable income?Ok so I've been pinging back and forth with my accounting firm and they are modeling appx. $11.5k in net savings via the S-corp by arranging the payroll in 2 separate ways:
1. paychecks paid to me in a calculated amount that covers ONLY the tax due on revenue ($5k/mo). These are effectively received as monthly $0 paychecks.
2. all excess paid out as a business distribution which is tax-free (remaining $115k of $175k gross)
How does that land with you all? Does this make sense?
And I still don't see where the savings come from - even if you only isolated the payroll tax impact, you are saving 2.9% of $115k that you aren't taking as salary but creating a new liability of 6.2% employer SS on $60k that is paid as salary - do the math, 6.2% of $60k is more than 2.9% of $115k... and that is before accounting for the loss in QBI deductions.
Statistics: Posted by avalpert1 — Fri Nov 01, 2024 1:00 am