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Level 4

TAX BENEFITS: If I am self employed sole proprietor and the company makes 100,000 + 100,000 from my husbands salary versus paying myself 20,000 through a S-Corp ($20,000, i.e. 20% is my approx profit) . I'd like to lower my total taxes and lower my student loan payment.

 
9 Replies
Level 10

TAX BENEFITS: If I am self employed sole proprietor and the company makes 100,000 + 100,000 from my husbands salary versus paying myself 20,000 through a S-Corp ($20,000, i.e. 20% is my approx profit) . I'd like to lower my total taxes and lower my student loan payment.

you have to pay yourself a reasonable salary if you work for your s corp.
Level 19

TAX BENEFITS: If I am self employed sole proprietor and the company makes 100,000 + 100,000 from my husbands salary versus paying myself 20,000 through a S-Corp ($20,000, i.e. 20% is my approx profit) . I'd like to lower my total taxes and lower my student loan payment.

halpalms is correct about a reasonable salary from the S Corp.  however, it is not  defined in the code but rather the results of court cases, IRS rulings etc.   even more complicated is the fact that the various tax courts don't agree on what's reasonable.

 

the best advice I can give you is to sit down with a tax advisor or financial planner.       they will gather a lot more info than what you have provided to provide you with the best advice   

Level 20

TAX BENEFITS: If I am self employed sole proprietor and the company makes 100,000 + 100,000 from my husbands salary versus paying myself 20,000 through a S-Corp ($20,000, i.e. 20% is my approx profit) . I'd like to lower my total taxes and lower my student loan payment.

Sadly if you are trying to qualify for Income Based Repayments on the school loans simply paying yourself $20K of the $100K the S-corp makes it will not work since the repayment is based on wages + the pass thru income from the K-1 issued by the S-corp.   If you could do it this way the IRS and student loan entities would never get paid. 

Level 4

TAX BENEFITS: If I am self employed sole proprietor and the company makes 100,000 + 100,000 from my husbands salary versus paying myself 20,000 through a S-Corp ($20,000, i.e. 20% is my approx profit) . I'd like to lower my total taxes and lower my student loan payment.

The company makes 100k. As sole proprietor I file jointly with my husband.  We pay 11% in Tax a year after deductions.

My student loan payment is based on the company's revenue - deductions + my husbands salary - deductions.

$1200 per month or $14,400 a year. (Which is approx 90% of my income)

 

OR

 

The Company makes 100k - 80,000 expenses = 20k  

This means the maximum I can pay myself is approx $15,000 + taxes + withholding

As an employee with yearly income of $15,000 my student loan payment would be $210 per month or $2520 a year (Approx 20% of my income)

 

The Deductions are different. 

 

I am trying to determine if switching to an S-Corp will decrease my deductions, which would increase the total tax I pay. I.E. would it exceed the $12,000 a year I'm trying to save in student loan payments.

Level 4

TAX BENEFITS: If I am self employed sole proprietor and the company makes 100,000 + 100,000 from my husbands salary versus paying myself 20,000 through a S-Corp ($20,000, i.e. 20% is my approx profit) . I'd like to lower my total taxes and lower my student loan payment.

If I pay myself under the s-corp i would prob have to report a loss on the K-1. I'm paying myself the 20k that would have been profit as a sole proprietor but is a payroll expense as s-corp, right?

Level 20

TAX BENEFITS: If I am self employed sole proprietor and the company makes 100,000 + 100,000 from my husbands salary versus paying myself 20,000 through a S-Corp ($20,000, i.e. 20% is my approx profit) . I'd like to lower my total taxes and lower my student loan payment.

Ok ... so you do NOT have a, S-corp  that "makes" 100K net ... you have a company that nets $20K before your wages are deducted.   If you pay yourself $20K in wages + payroll expenses then the net business income is zero and the only thing the IBR is calculated on is the wages paid + any income your other spouse has IF you file a joint return. 

Level 4

TAX BENEFITS: If I am self employed sole proprietor and the company makes 100,000 + 100,000 from my husbands salary versus paying myself 20,000 through a S-Corp ($20,000, i.e. 20% is my approx profit) . I'd like to lower my total taxes and lower my student loan payment.

Correct.
Level 4

TAX BENEFITS: If I am self employed sole proprietor and the company makes 100,000 + 100,000 from my husbands salary versus paying myself 20,000 through a S-Corp ($20,000, i.e. 20% is my approx profit) . I'd like to lower my total taxes and lower my student loan payment.

However, I don't currently pay myself a wage. Currently it is gross 100k net 20k. I reinvest the 20k in inventory.
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Level 20

TAX BENEFITS: If I am self employed sole proprietor and the company makes 100,000 + 100,000 from my husbands salary versus paying myself 20,000 through a S-Corp ($20,000, i.e. 20% is my approx profit) . I'd like to lower my total taxes and lower my student loan payment.

Then you do not have any profits if you spend all the income on expenses like inventory.  If you were to take a salary (as you really should) then you would need to seed the company with money to pay the extra expense and would run at a loss.   I highly recommend you seek local professional assistance to be educated in keeping the books and the IRS/state reporting requirements you need to follow.