Wife practices IM in private solo practice in California and grosses about $400k/year. The income is expected to remain steady or rising. We have 3 employees. We are thinking about forming a S-corp for tax advantages.
Let's say overhead is 50%, net income is 200k. At 15.3% SE (self employment) taxes, she would pay $ 30600 in yearly SE taxes. If she forms a S-corp and takes 60% salary (120k salary, 80k distribution), she will pay $18360 in SE taxes. However, an S corp in CA is subject to 1.5% state tax on its net income, thus she will pay $3000 in state corporation taxes. Overall saving with S-corp by my calculation would be $9240 (30600 - 18360 - 3000). I feel I can handle the incorporation process and yearly tax returns by myself.
1) is the calculation appropriate or I am missing any factor?
2) Any arguments in the favor of sole prop.? Except the fact that no special corporate taxes, no stringent recordkeeping & "complicated" corporate tax return.
3) Is 120k a reasonable salary? She works 2 full days & 2 half days.
Thank you.
Let's say overhead is 50%, net income is 200k. At 15.3% SE (self employment) taxes, she would pay $ 30600 in yearly SE taxes. If she forms a S-corp and takes 60% salary (120k salary, 80k distribution), she will pay $18360 in SE taxes. However, an S corp in CA is subject to 1.5% state tax on its net income, thus she will pay $3000 in state corporation taxes. Overall saving with S-corp by my calculation would be $9240 (30600 - 18360 - 3000). I feel I can handle the incorporation process and yearly tax returns by myself.
1) is the calculation appropriate or I am missing any factor?
2) Any arguments in the favor of sole prop.? Except the fact that no special corporate taxes, no stringent recordkeeping & "complicated" corporate tax return.
3) Is 120k a reasonable salary? She works 2 full days & 2 half days.
Thank you.
Comment