I've been doing some reading on WCI and talking to colleagues and I'm trying to evaluate whether I should be switching from a sole proprietor to a single person S-corporation. I know the main benefit is saving 2.9% Medicare taxes and 0.9% Obamacare taxes above certain thresholds. I also know there is additional hassle/cost so I'm not sure how much extra that typically runs. I've heard 400k thrown around as a typical number where income has to be above for it to make sense but I wasn't sure what particular amount of savings we're generally talking about and wanted someone to review the numbers.
State: Pennsylvania
Occupation: physician paid exclusively 1099 (year 3 out of training)
Tax filing status: MFJ
Income (all 1099): ~620k past two years. Likely 700k+ this year (so use 700k for assumptions)
How much to pay yourself: I read WCI blog post and they said keep it at 50% salary and 50% distribution (although if distribution should be lower, please comment on that)
So, if math is correct...
350k in distribution
2.9% Medicare + additional 0.9% Obamacare = 3.8% savings
Anticipated savings: 350,000*.038 = 13,300
That seems like a decent amount of extra money to be saving annually on taxes alone. The number would go down if my distribution % decreases but it still seems that the savings would be substantial. In general, how much extra cost would it be for a CPA to do bookeeping/payroll/tax preparation if I went this route (compared to sole proprietor) as I'd likely outsource most/all of that work to them to save me on time. I'm guessing a few thousand a year in costs which still nets me 5-10k savings/year.
Lastly, how much extra work does it really take if the CPA does "most/all" of the work. I'm really not looking for a lot of extra side projects.
Appreciate any/all help with assumptions and opinions.
State: Pennsylvania
Occupation: physician paid exclusively 1099 (year 3 out of training)
Tax filing status: MFJ
Income (all 1099): ~620k past two years. Likely 700k+ this year (so use 700k for assumptions)
How much to pay yourself: I read WCI blog post and they said keep it at 50% salary and 50% distribution (although if distribution should be lower, please comment on that)
So, if math is correct...
350k in distribution
2.9% Medicare + additional 0.9% Obamacare = 3.8% savings
Anticipated savings: 350,000*.038 = 13,300
That seems like a decent amount of extra money to be saving annually on taxes alone. The number would go down if my distribution % decreases but it still seems that the savings would be substantial. In general, how much extra cost would it be for a CPA to do bookeeping/payroll/tax preparation if I went this route (compared to sole proprietor) as I'd likely outsource most/all of that work to them to save me on time. I'm guessing a few thousand a year in costs which still nets me 5-10k savings/year.
Lastly, how much extra work does it really take if the CPA does "most/all" of the work. I'm really not looking for a lot of extra side projects.
Appreciate any/all help with assumptions and opinions.
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