November 23, 2020

Do Corporations Get 1099

Do Corporations Get 1099 welcome back to our Channel clear value text my name is Brian Kim I'm a certified public accountant and in today's video we will be discussing the drawbacks of an S corporation so we're talking, about the S Corp disadvantages I'm sure you can find a whole slew of videos out there talking about the greatness and the, benefits of the S Corp just saying it's the greatest thing however that depends on, your situation so we're gonna be providing you the drawbacks of the S Corp so you can have all the information at. Hand to make the best decision on whether it's, right for you so I'm gonna list them out here first and then we're gonna go into details about each one so here's the list. Of the drawbacks so you will have potentially reduced Social Security benefits upon, retirements there's the additional cost of the tax return of the S corp there's a chance depending on the work you are operating out of that you will be subject to state income taxes at the. Corporate level which you wouldn't have.

Paid as a sole proprietor there's the payroll software costs there's a unemployment taxes at the state level and also the.

Future the federal unemployment taxes as well and just the cost of your time just you going through all these additional compliance motions okay so let's dive into the, Social Security benefits so let me show you how this works so do you even know how is the, Social Security benefits are calculated so this is what happens each year there's a certain amount of your income that's subject to Social Security. Taxes we're talking about if you're self-employed even if you're an employee getting, a w-2 there's a certain amount of income that's subject to Social Security taxes currently at a rate of 6.2% okay so there's a. Maximum of the amount that is subject to Social Security taxes per year. There's an annual maximum they call that the wage base ceiling so in 2020 up to a hundred thirty seven thousand seven hundred is subject to Social Security taxes okay so if you, make over that amount you're no longer going to be subject to Social, Security taxes on your income so a lot. Of you who are making over that amounts during the year you might notice that you get a big net pay bump and don't know why that's because that means, you've made over that amount in that year and you're no longer being charged at six point two percent therefore your net paychecks bigger that's because at, a certain point which is adjusted for inflation each year you stop paying, Social Security taxes because you've paid in the maximum amounts for that year okay so the way it works how you calculate, your Social Security benefits it's based off your highest 35 years your highest 35 years of income there's a, calculation that's being run but to just give you a high-level overview they look at your highest grossing 35 years and based off how much.

You've paid into the system your how much Social Security taxes you've paid that's how your benefits are calculated so with the S, corporation perhaps you know perhaps you don't where's the bulk of the savings coming from in comparison.

To operating as a sole proprietor you are saving the bulk of your money operating as an S corporation by paying less. Social Security taxes so.

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