Small Business and W-2 Job | Does LLC or S Corporation still make sense?
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- เผยแพร่เมื่อ 26 ธ.ค. 2020
- Should your business be taxed as an S Corporation if you also have a job and receive W-2 income? That is the topic of this video. Specifically, I discuss:
1. What taxes you pay as an employee working for an employer?
2. What taxes do you pay as a sole proprietor?
3. What taxes do you pay as an S Corporation?
4. What taxes do you pay when you have a high W-2 wage and you also have a small business taxed as a sole proprietorship?
5. What taxes do you pay when you have a high W-2 wage and you also have a small business taxed as an S Corporation?
Take what you learn from this video and ask your legal or tax professional all of your specific questions. If you want to contact me, my information is below.
If you learned something from this video, please like and subscribe and follow me on my various social media handles below. If you would like to contact me with a specific question, please visit my website or leave me a comment.
Website: www.navimarajcpa.com
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This video was created for informational purposes and it is not to be construed as legal and tax advice specific to your unique situation.
© Navi Maraj CPA PLLC. All rights reserved.
#LLC #SCorp #Taxes
Thank you for the info! It's been challenging finding tax information for high W2 earners with a side business. I'm in the process of looking for a tax consultant regarding S Corp election and now I have my answer. You explained it very well!
You’re welcome @Cindy Wen. Make sure you watch the other videos (if you haven’t already) around when not to have your business taxed as an S Corp to make sure it’s a good fit.
Yea sir I’m heading out now and will let him know that
Thank you for these videos. These complex tax rules are very well explained and you answer all my questions.
Hi, I came across this while browsing for videos regarding S-corp. I am glad I clicked on it, and I wanted to thank you for explaining things in simple terms. That said, I have now subscribed to your channel and liked this video.
Omg FINALLY! A video that gets to the point about when you should convert and when you shouldn’t. THANK YOU!!
This video is full of answers to questions I had. Thank you for the detailed explanation! ☺
Keep seeking the truth and you’ll find all of your answers 😉...thanks for watching and happy to hear you are learning.
Thank you Mr. Navi. Informed when I needed specifics.
You're welcome - thanks for the comment!
You did a wonderful job explaining this and breaking this down. I finally get it. Thank you!! 😊
That's so great to hear! I love when viewers are finally able to understand a concept.
just discovered your channel and im already on my 3rd video. its like you have a video for all the questions I’ve had for YEARS
This is amazing! Thank you for explaining things so simply with examples.
You're welcome...glad you enjoyed it!
Finally someone covered my question!
Great job explaining a concept that can be quite confusing. Thank you - very helpful!
Thanks for the feedback Erez! Glad it was helpful for you.
Excellent video with great information!! Thank you for sharing your knowledge, I needed this information before starting my LLC.
Wonderful info! Thank you for explaining this is great detail, with visuals!
Thank you for this excellent explanation. This is exactly what I needed to see .
You’re welcome @Scott Gier...glad you found it helpful!
Same
Great information, thank you for taking the time provide this to us.
You’re welcome Alandy! Glad you found it helpful!
Thank you so much for creating this. I finally found an answer to my question.
Exactly the info I was looking for (W2+1099 situation and when S corp is worth it)! Thank you for the video!
Thank you for the hard work. Keep it coming!!
You're welcome Sean! It takes a lot of time to put these together - you would be surprised!
This is the best video ever to explain why NOT having S-Corp make sense! Very clear, up to the point and no BS. Just one question left unanswered: Why higher profit, e.g. $250k, will make sense again? @Navi, is there other video explaining that situation? Thanks!
The answer is on 12:20 . Thank you Navi for explaining this. I did not realize that there is a SS cap for the employee, but not the employer. BIG thank you !
Excellent information!. Thanks a lot!
This video saved me! Excellent info!!
great video made simple. I appreciate your time, thank you Navi.
Thanks Joseph - glad it was helpful for you.
I see YOU! Good phone chat about this and great vid
Very helpful information. Thank you!
Hey great info and very well explained! Thank you!
Thank you so much for breaking this down for me.
You're welcome La Tasha! Glad I could help!
Thank you. Great explanation!! Very helpful
SO AWESOME and very easy to understand! Thanks.
You're welcome and thanks for the feedback!
As always, great video!
Thank you so much for explaining. This is such good information.
Thank you for the informative video. I really appreciate it.
So helpful, thanks!
Great Video couldn't find it anywhere! Thank you so much
You’re welcome and thank you for the feedback. The drawbacks of an S Corp are rarely explained but are so important to know.
@@NaviMarajCPA May I know if my W2 is only $50k, but my small business income is $100k. Could I benefit from the tax deduction? Thanks
You should not run into the issues discussed in this video based on the income levels you noted above.
Great Video and breakdown.
Thank you Navi!!!
Very informative...thank you very much for sharing this content...you explained it well🤗💯
Thanks for the feedback @Mommy & Me Life! Glad you found it informative. Stay tuned as I plan on teaching more in 2021.
thank you Navi! I'm an advanced practice nurse looking at 1099 work while also keeping my part time benefitted W2 job. I was thinking s corp would be the way to go, but now your video has cleared that up for me. Unless I'm going to work a lot of 1099, I don't necessarily need to incorporate. Also, from what I understand, LLC is not an option in CA.
This was a great video. Thanks 👏
You’re welcome Rich!
Very well explain brother
Jazakallah khair
Thank you for this Video. It helps a lot. I have a High W-2 and right now my Company is Not making much money. It is really making me think twice about electing for an S-Corp when it does make more Money.
Great - glad I could help!
Excellent info!!!
Thank you Candace!
Thank you for sharing.
You’re welcome DDown!
Excellent!
Brilliant!
Thank you, your video is very helpful
Thank you for this video. This is exactly my situation and I could not find anyone to clearly answer the question. You did an excellent job explaining this concept for high earners!
Thanks for the feedback Angela. Glad you found your answer.
Hi Navi, thank you very much for explaining/breaking down these tax topics for us. Your videos are very informative. Kudos to you for explaining it so well.
If Im a self employed loan signing agent with a potential to earn $100k & I am also a landlord with rental properties making $45K profit a year, should I make a separate single member LLC for each & what should the tax category for each of them?
Best video I've ever watched
Best comment I ever received!
Great info
Thank you so much, I never took into account the limit on OASDI is actually a cost saver than an S-Corp.
You’re welcome Tom…many people make this mistake. Glad it’s not you! 😉
Thanks !
Have to rewatch few times for it to get processed by my thick skull
Best video on S corp. It is so helpful. Would you please do another video on the scenario as you mentioned in the video? If W2 is $140,000 and net profit from LLC is over $250,000, how S corp works better? thank you so much
I needed a car loan from a car dealership and I needed to bring in my w2s last week and that got my stressed out asf till I came across some great comments about deelscafe💯💯.
Thank you, Navi. Lots of my questions get answered. First, I understood where self-employment tax 15.3% came from. Second, LLC works better with High paying W2. Would you suggest what other tax benefits one should look for with (high W2 + LLC)? Thank you!
Thank you. Can you kindly make a video on the scenario where one has a high W2 income but also a S corp profit beyond $250k or whatever amount that would justify having a S Corp.
Thank you for this amazing video. What is the best way of reimbursement the miles, tolls, gas, hotel and any other expensives to my employees or deduct them as company expenses?
I fit into this scenario. Here’s what I have done
At my W2 job my salary is 130K a year. So what I’ve done is have the 401K maxed out. My HSA maxed out. I’m over 50 years old so o have the catch up portion maxed out as well. Reducing my TAXABLE W2 income substantially.
Great to get this information! Difficult question coming up: If I am a high W2 earner and have a side hustle with an LLC as a sole proprietor, would I still have the ability to contribute employer profit sharing to a solo 401(k) attached to the LLC?
This is great info. Thank you. Question: I have a high paying W2 job and I'm having to use my W2 income to get my LLC off the ground to avoid borrowing. How much of my W2 income can I write off?
wait.. you didn't answer the question if high income W2+LLC make sense.. so if S-corp doesn't make sense are you saying LLC would be better?
Hi Navi, great video. This will be an important issue for my wife as she decides whether to have her SMLLC taxed as disregarded or S Corp. Question: could you point me to a link or somewhere in the tax code that verifies what you said about S corp owner-employees still owing the employer portion of Social Security (on reasonable compensation) even after they've reached the wage base from W2 income? I believe you, I just haven't been able to find anyone else talking about this. Thank you!
Can you do videos on what if your spouse is a W-2 income earner and you are an S-Corp?
Hi Navi, Thank you for making me understand how all this works. It took me four of your videos to finally understand how all works. Thanks for going extra step with color coding. It make so much sense now. Can you please make sure my understanding is correct below. Thank you again.
If I have $100k in W2 and $100k in business income it would make more sense to open my business as LLC enity S-corp tax classification, correct? Because if I do sole proprietary I have to pay social security on $42k out of my $100k business income and multiply it by social security tax rate 6.2% and have to doubled it for employee and employer plus I have to add medicare tax on my 42k at 1.45% and then increase it to around 2% on rest 58k. But if I open S-corp and take 40% whick is 40k than I will only pay social security tax and medicare tax on 40k two times for employee and employer and then deduct the employee part when I do my taxes. Is this correct understanding?
Sounds like you’re understanding everything correctly! 👍🏼
thank you for sharing your knowledge. Question: I have a full-time w2 paying join and a business that has very irregular income. It's a service business. I am able to live off my w2 job (not my business) and I want any income from MY businesses to go back into the business - 100% for training, equipment, marketing, networking, etc. I am not planning on taking any draws for the next year. In this instance, would my business still be liable for quarterly SE filings and SE taxes if there are no profits at the end of the year because everything was re-invested into the business?
Excellent info, but perhaps consider reducing the 3 minute intro before beginning to answer the question you posed in the first few seconds.
Thanks for the vid.
The primary reason people elect to file taxes as an S-Corp is to avoid paying employment taxes which max out at 21,840 in this example. If you have already paid those employment taxes via a W2 job then there is no advantage in filing your business taxes as an S-Corp. It's really no more complicated than that.
Why don't you do a video on the financial benefits of moving to a state with zero income tax? Florida for example :). Now that is saving money!
Again, your videos are very informative. How can I claim pro bono work? Can I even do this?.
Thank you so much for this info. I’m debating now if I should have my California LLC taxed as an SCorp? Is it possible to take a quick look at my current situation and let me know if I should not do an SCorp???
1. My California LLC profits $142,000 a year (actual income).
2. California State Pension is $130,000 a year.
3. Full time California employment is $95,000 a year.
Does it make sense to have my California LLC taxed as an SCorp? Thank you…
the salary base is only for one person earner? what about marriage joint? cos me and my husband have almost 140,000 yearly together and have Multi-member LLC formed with just two of us. your reply is appreciated.
I am paying an arm and a leg in taxes with a side job and LLC - sole p.
The high salary you are referring to, is that also applicable to two low incomes W2s (Spouses income adds up to 143K) when filing taxes together along with a side hustle income? I am debating between starting an LLC or an S-Corp.
Thanks Navi! Very well explained.
Would it be worth filling for S corporation if the business is a loss with negative profit with high income W2?
Hi Kan. Tough to answer without knowing the specific details but off the top of my head I can't think of many benefits to being an S Corp vs. being taxed as a sole prop if you have a loss.
hi, Navi, good stuff.
For a high-wage earner, if the business is absentee-run, can he/she not do owner-draw, only take a distribution (the rightmost column)
Could you maybe do another video with emphasis on tax penalty or benefits from either short term vs. long term trading in the stock markets and whether or not it would make sense to file as an S Corp while having high earning from W2 income?
Thank you for the video suggestion/request. Honestly, I'm not sure I'll discuss that anytime soon - it is not really an area I specialize in but definitely a hot topic at the moment.
Occasional Trading for individual is considered buying and selling capital assets for yourself and the profit or loss is taxed at capital gain rates (more favorable unless it is a short-term cap gain which would be taxable as ordinary income in your tax bracket). You are considered to be a dealer if you actively trade securities to customers and in this case it would be your active ordinary income because you will provide services. Long-term cap gains are always taxed at reduced tax rates. Not sure about what kind of tax penalty you are referring to.
Navi, you have answered something i have been trying to figure out forever based on a side business with W2 employment income. Thank you! Does this work the same with the base wage if you are married filing jointly and you want to have the side hustle on an LLC? Does the LLC have to be in a partnership or is it best to make it a single member?
Glad you are getting your questions answered! I'm a little puzzled by your question but something that may be helpful to know is that the wage base is per individual. You have your own wage base and your spouse has their own wage base even when filing married filing jointly.
Thank you for this info. I already have my s corp paperwork ready, however I’ve been trying to understand the benefits and disadvantages of it. My husband is not a high salary earner and just started our business and maybe will profit of less than $10,000 Would The S corp filing make sense for us?
Great videos, my question is what if you dont have w2 income over that much but you want to start a partnership llc. Im in NH so I understand the s-corp is not recognized.
Thanks for the feedback! If that is the case then the contents of this video are likely not a concern for you.
If I work for the railroad and pay into railroad retirement and not social security will my LLC have to get taxed for social security? and does it cap off at a certain amount with the railroad retirement? Thanks for the videos they help a lot.
Thanks for the content. What if you ain't living the high life and are a low wage w-2 earner ($40k) and have an LLC where you earn about 12k profit. It seems like you are suggesting going the standard llc sole proprietor tax route is best?
Yes, based on that limited information - being taxed as a sole prop is likely best. Please keep in mind that this is not individualized tax advice. Thanks for watching!
Thank you Navi. Very informative and easy to follow. What about in a case where there is a high earning W-2 (around the 145k) in conjunction with a low income generating LLC (5-7k)? Does it still make sense to tax the llc as a partnership?
I’m that scenario there would be no reason to elect S Corp status for the LLC.
@@NaviMarajCPA thank you 😊
Thank you! This was a very helpful!
This is the most clear video I saw on this topic. Thank you. One question though: how does QBID come into play here? Say I have 100k of profit as sole proprietor, I get 20% QBID so all my taxes (including state/fed income tax) will be based on 80k. If I elect S Corp and pay myself 60k, then I only get QBID on the 40k K1 profit, so my tax basis for state/fed income tax will be on the 90k (50k W2 + 40k K1) which could wipe out the savings on FICA tax, am I thinking about it right?
Hey Serena...you're on the right track. Using your numbers which one save you more money? ($40,000 K1 x 15.3% = $6,120) or an additional $12,000 tax deduction ($20,000 QBID with sole prop vs. $8,000 QBID with S Corp) based on your federal and state income tax rates.
Note that there is a lot more to consider which it comes to the Section 199A deduction so I am just using your assumptions in the above response. Also, this is not individualized tax advice.
Hey Serena!...this week's video being released on 08/27/21 @ 5PM EST will cover the QBI Deduction.
Thank you! Quick question...in this scenario...is the 142800 for each or is the W2 and Sole Prop be combined?
after watching this, I understood that Social security tax from W2 side will be refunded, so we all should be earning more upto or over the salary base, right? otherwise, we wont get back at all.
Thank you! Can I receive an S-Corp payroll and work as a full-time w2 at the same time?
Hi, I've been trying to wrap my head around this, even hired an online tax advisor but am still not sure what's best. So I have a high. W2 ($120k) + ($100k revenue side gig), they are recommending an S-corp for the side gig but I think that's not what you are saying. You are recommending a sole proprietorship for a side business right?
Hi Navi. If I have a W2 as a part time making around 40k a year and 130k with airbnb (will get 1099 for it) but after expense it would be 70k. In total, I would make 30-40k with part time job (W2) and 130k with 1099 but after expenses deducted..around 70k, and comes down to 110k total income.... do you recommend that I set up a company as LLC or S Corp for this type of income? or should I do everything as SELF-EMPLOYED?
Hi Navi, thanks for the video. What if you make 150K as a contractor but have no side hustle. In this example, I would be the contractor who gets paid through my S-corp. How does the wage cap of 137K affect this? Thanks
Hi Navi, thanks for the great info! If I am considered a high income earner yet my son wouldn't be considered a high income earner, how would the self employment taxes work in that case? Would I be void of the additional social security taxes but will my son have to pay that? Not sure if that makes sense but would an LLC still make more sense over S-Corp then? looking to start in Amazon FBA.
Hi Hayden….because your question is pretty specific and I would have follow up questions, I won’t be able to answer you here. If you would like, you can schedule a Q&A session on my website.
what if you are an employee and married, reporting as dual income, is the combined salary or individual salary taken into account? Thank you for the informative video!
Navi, to me as a rule of thumb, it's roughly a wash. If you use round numbers for the sake of simplicity, let's say SS tax is 6% each side, and the medicare is 3% total. If you make 90k and keep it as a sole prop, you get taxed $2,700 for the medicare only (SS is maxed out). If you're an S Corp and pay yourself $30k, you pay the employer SS ($1,800) plus medicare ($900) for a total of $2,700. Aside from the round numbers I'm using, am I missing something significant?
Thank you for the info. If my business (S-corp) pays 7.65% payroll taxes on my salary then it can be written off as business deductions correct ?
I am in this awkward position. I have already generated 132k in W2 income this year. I am considering converting this same W2 contract to a C2C contract for the next 4-6 months in part because C2C pays $10/hour more. I am also considering taking on a 2nd contract that is either W2 or C2C. Is it better to convert the 1st contract to C2C and take on a 2nd C2C contract, or take on 2 W2 contracts that would each pay $10/hour less on W2?
My salon is small business, only me working. I have a LLC, and have to pay for the payroll $100 a month, I also have W2 . I can’t get a PPP LOAN because I don’t have 1099. So what should I need to do?
Can we file an amendment for prior years? I made the mistake of getting my company treated as a scorp when w2 was above limits. I did file/run payroll returns
I thought the wage based cap is you pay UP TO not zero. Why would the 8K SE tax for LLC be returned? Thought you would pay no more than that? Please clarify the wage based again. At the 13:59 point you say we will get those two large chunks back. Is that true?
What is the best booking software to make I am accounting for all transaction ?
For S-Corp election, I think if you reduce the employee salary portion ($57k portion) while having the rest of the $142k as distributions (tax free as long as not exceed stock basis) then could you make the argument that you'll save more money than an LLC election?
Thank you for sharing! Looking for info but getting mixed answers. As a real estate agent in CA if I am getting paid with a W2, am I allowed to deduct business expenses?
If you're an employee receiving a W-2 then you cannot deduct any business expenses. These are referred as "unreimbursed employee expenses" and in the past, prior to the passing of the Tax Cuts and Job Act (TCJA) you could deduct a portion but that has been eliminated. This is probably why you are receiving mixed responses.
@@NaviMarajCPA I see thank you, that makes total sense!
I have had an LLC s-corp but took a $150,000+ job. My business will do between $5k-$15 per year as I take on projects I want to work on. I’m in the process of closing out my payroll account with the company I’ve been using. Would I file paperwork to convert my LLC back to being taxed as a sole proprietor or am I safe to just take owner draws and not take a payroll?