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Originally Posted by patrick24601  I am also curious as to why a C corp and not an S corp. I am going to go back and read the blog post but I didn't think I saw that in there. |
It's not a C corp or S corp, it's an LLC but he chose for it to be taxed as a C corp. LLC's pass-through income taxation seems to be the same thing as how an S corp gets taxed. As a C corp though, money that stays in the business account is subject to a corporate tax and doesn't count as part of his income. The advantage here as I understand it is that you don't pay social security, medicare, and any other self employment taxes on the money that stays in the company.
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Originally Posted by Lauxa I have heard that if you own an LLC that it's better to take dividends than to become your own employee. Or to employ yourself to the extent that it is legal necessity (minimum wage?) and then to take dividends to cover the rest of your expenses. The reason being that you have to pay employment taxes on any money that you pay to an employee. |
I don't know much about dividend taxation, but becoming an employee of your company is actually a good idea. Though it can probably only be done if your income is not pass-through, meaning that the company is taxed as a corporation. This way your company pays half your medicare, social security tax, etc. which is actually a good thing in general because these costs along with your salary can be counted as a company expense, thereby reducing the income tax your company pays. Unfortunately this creates lots of extra paperwork not only for tax returns but also for payroll.. But it sounds like Steve can easily afford as many CPAs and lawyers as he needs.
