On today’s episode of “Tax Blueprints”, we’re dissecting an often misunderstood yet crucial tax topic that affects small businesses and self-employed professionals: S-Corporations and Self-Employment Taxes.
S-Corporations can be an exceptional tool for minimizing Self-Employment taxes, particularly when compared to business structures like Sole Proprietorships and Partnerships. Daniel Rohr, your trusted CPA/PFS, EA, M.S. Tax, breaks down the tax structure for these entities and illustrates the significant difference it makes to your bottom line.
Using an engaging example, we simplify this complex concept, showing how operating as an S-Corporation can yield significant tax savings. However, we also shed light on the importance of paying yourself a “reasonable wage” and the IRS scrutiny that comes with it.
We then flip the coin to explore the potential downsides of underpaying yourself. While it may seem like a smart move to save on taxes now, it could cost you in your retirement years. We delve into the workings of Social Security benefits, explaining how they’re calculated and how underpaying yourself now might reduce your income in the future.
By the end of this episode, you will have a clearer understanding of the intricacies of S-Corporations, self-employment taxes, and the long-term impacts on your retirement. Armed with this knowledge, you can make informed decisions about your business structure and tax strategy, striking a balance between your immediate tax savings and future retirement benefits.
As always, remember that tax laws are complex, and our podcast aims to provide a general understanding, not professional advice. Always consult with a tax professional before making any major decisions regarding your business structure or tax strategy.