Should I use form 2555

Forum|Forum|2 years ago
January 27, 2024
1 reply
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I would like to switch from an s corporation to individual tax filing (married filing joint) to maximize FEIE and deductions without the additional expenses of SS and MC

TurboTax Online

jtax

Level 10

Not sure I understand the question. Either you were an owner/employee of an s-corp in 2023 or you weren't. You can't change after the fact. You certainly could shutdown your s-corp in 2024 and act as a sole proprietor after that date.

Also I wonder if you have the s-corp vs. sole proprietor SS/MC benefits backwards. An s-corp owner does not pay SS/MC on the s-corp's profits. Only on wages. But you MUST pay "reasonable" wages, which means whatever the market rate for someone performing your job would get. And you must pay SS/MC on those reasonable wages. A sole proprietor pays SS/MC on a net self-employment income. (I.e. business gross income minus business expenses).

Please clarify if I am misunderstanding.

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robertone139Author

Level 2

You are correct, I started an S corp in 2023 for my wife and me to keep contributing to SS/MC and do not lose that money. However using the ss.gov retirement calculator we realized that is costing us almost 20,000 dollars per year in SS taxes plus other expenses not to lose 200$/ month for each of us by the time we reach 67.

I have a CPA who's taking care of the corporate taxes and payroll, however those are other expenses bringing the total to over 23K.

I could dissolve the corporation and just file married joint next year as my tax liability would be way less than what is costing now.

moving on, I would need guidance in how to apply the 126,500$ FEIE, the 29,200$ standard deduction and the 16,000$ (combined) IRA contributions for tax year 2024.

Hope this is not too confusing.

robertone139Author

Level 2

@robertone139 thank you for the clarifications. I will edit my response to correct my errors. You have clearly done some good research and and have a better idea of what's going on than post posters.

You are correct about tax bracket range. I incorrectly used the head-of-household column.

Your cite to the 1040 instructions is also correct. My explanation of marginal tax brackets is usually correct, but does not apply in the case of use of the FEIE. (It used to but they changed that a number of years ago.)

I don't know why your mocked up return is showing zero tax due. I'll see if I can work one up and see what is going on. This is why I like doing sample returns. Otherwise there are details one can miss.

BTW don't know if you're using the PC/Desktop version of TT. Most of the volunteers use that because it lets you see the forms, right click for cross-references, etc. I highly recommend it.

@jtax ,

Thanks for your reply, I believe the mock return shows zero because I only used the IRS forms online and not the TT software.

I need to download the SW but I was going to see and wait for my CPA.