Increasing Self Employment Tax:
The Curse of Success
We work with a lot of small businesses on taxes, tax planning, business improvement, entity selection, bookkeeping, payroll, etc. We have worked with some since startup, while others have come to us after having been in business for some years.
The common refrain with all is what is this Self-Employment (SE) tax and HOW DO I GET RID OF IT?
In a way, it’s one of those ‘nice problems to have’ as you’re not paying SE tax if you’re not making a profit and the reason the SE tax is getting larger is because your business is growing.
And it’s great that your business is growing, but is there a way to REDUCE those taxes?
And the good news is: YES, there is!
If your business is taxed as a sole proprietorship, a partnership or an LLC taxed as either, you’re going to pay self-employment tax. You make a profit and pay ordinary income tax on that profit. BUT you ALSO pay Self-Employment tax on that same profit!
For some businesses, maybe most businesses, the solution could be changing your entity to an S-Corporation. It may not be the best move for all businesses, but it’s worth a look for most that are paying the SE tax.
Here’s how it works: With an S-Corporation, your profits are split into 2 streams, a wage and a dividend (sometimes called a distribution). The wages are subject to payroll tax, which is analogous to the SE tax. But the dividends are not! The dividends are subject to ordinary income tax but not the SE tax, keeping that money in your pocket.
This can save you hundreds or even thousands of dollars on your tax bill!
Interested in hearing more? Sign up for our White Paper on the good and bad of the S-Corporation strategy! Or call us at (303) 745-3962 for a free business consultation to see if what entity might be right for you.
REDUCE SELF EMPLOYMENT TAXES
The S-Corporation strategy can save you hundreds, or even thousands of dollars on your Self Employment tax bill! Interested in hearing more? Click here to sign up for our White Paper on the good and bad of the S-Corporation strategy and if it's right for you.