![\"S-Corporation-Letter\"](\"https:\/\/www.foell.org\/justin\/files\/2013\/04\/S-Corporation-Letter.jpg\")
<\/a><\/p>\nHowever, it’s not all doom-and-gloom. A good starting point to split wages & earnings is 50\/50 and you still stand to save some money.<\/p>\n
A Simple Comparison<\/h2>\n
This is an oversimplified example using a Minnesotan making $50,000 a year paying taxes at a 25% federal income tax rate and a 7.05% Minnesota income tax rate.<\/p>\n
Schedule C<\/h4>\n
Income: $50,000
\nLess Social Sec. \/ Medicare ($7650 @ 15.3%): $42,350
\nLess Fed. Income Tax ($10,587 @ 25%): $31763
\nLess MN Income Tax ($2,239 @ 7.05%): $29,254<\/p>\n
S-Corp<\/h4>\n
Income: $50,0000<\/p>\n
Earnings (K-1): $25,000
\nLess Fed. Income Tax ($6,250 @ 25%): $18,750
\nLess MN Income Tax ($1,321 @ 7.05%): $17,429<\/p>\n
Wages (W-2): $25,000
\nLess Social Sec. \/ Medicare ($3,825 @ 15.3%): $21,175
\nLess Unemployment Tax ($105 @ 0.5%): $21,070
\nLess Fed. Income Tax ($5,267 @ 25%): $15,803
\nLess MN Income Tax ($1,114 @ 7.05%): $14,869<\/p>\n
That leaves you with $32k rather than $29k. With tax preparation costs somewhere between $300-$700, it’s still worth it. My tax preparer, Randy Valtinson at Central Tax Service<\/a>, charges $400 to do my S-Corp filing. He’s a S-Corp evangelist if I’ve ever met one. I’m glad there are tax nerds like him out there fighting the good fight for us.<\/p>\n Another word of advice. If you’re currently filing a Schedule C – time the switch to an S-Corp wisely. I did mine in the middle of the year – not smart. I continued to pay my quarterly taxes at my Schedule C rate and added unemployment tax payments on top of that. It was a tough year that made me doubt that the S-Corp election was worth it. I didn’t feel any relief until a full tax year later.<\/p>\n Learn from my mistake. Your Schedule C should cease on December 31st and your S-Corp should start on January 1st. It will make life much easier for you, your tax preparer, and your wallet.<\/p>\n This article’s concepts should be considered independent from the layout of your business: whether it’s a sole-proprietorship, partnership, LLC, etc. We’re only talking about how you file your taxes. This article is also geared towards freelancers, subcontractors, and small companies. Schedule C For most people getting started on their own, there is the “Schedule C.”… Continue reading Timing it Right<\/h2>\n
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