Tax / IRS HELP!! For my own business......W-2 or 1099?

Question

I am president of my Corp. & was wondering if there is any tax benefit to making myself a W-2 employee as opposed to a self -employed 1099 worker for my Co. The benefits seem to favor 1099. Does anyone know what it would benefit me to put myself as w-2 instead???

Do I get taxed a higher tax for money left in the business (income that the Corp. made for the yr) than the tax my corp would have to cover for a W-2 employee???

I also will be the only one working for my Corp. My husband is a VP & I am filing to be an S Corp!!! All help welcome!!! =)

Answer 1

Follow the advice given.  It's NOT about what benefits you or the corp better, but what the LAW says you MUST do.  That's been explained to you by some experts here.  Follow their advice to avoid major hassles down the road.

BTW, ALL of the profits of the S-Corp will be taxed to you.  Any profit remaining flows to your individual income tax return; you cannot leave it in the business.  If you fail to pay yourself a reasonable salary, it will be subject to SE tax (and possible penalties) when it hits your tax return.

I also have to ask, why have you formed an S-Corp?  What do you expect it to do for you??

Answer 2

W-2

Answer 3

Read this for W2 vs 1099-misc

http://taxipay.blogspot.com/2008/03/w2-o...

Answer 4

As others have stated, if you incorporate, you *must* pay yourself with a W-2.  You cannot issue yourself a 1099-Misc.

(While you don't have any OTHER employees, you have you.  If you perform *any* services for the S-corp, YOU are the employee.  And yes, you MUST do the 940 and 941s and issue a W-2 at the end of the year.  I still have no idea exactly what your husband's doing.  If he does work, he's supposed to get paid too.)

The real headache is that you must pay yourself a reasonable wage.  $0 is not reasonable.  $1Million is not reasonable.  Whatever number you pick must be defendable.  Eg, you pay yourself by the hour and if you hired someone it would be at $15/hour.  Eg, you are in consulting and you used to make $50,000/yr.  You cannot defend $0 for wages and then show a business profit of $50,000.

The 15.3% payroll tax is still paid, it's just that 7.65% appears to come out of the W-2 and the other 7.65% comes out on the taxes paid line.)

I have no idea why you thought a 1099-Misc was "better" than a W-2.  What benefits are you thinking you are missing?  And exactly why did you incorporate?

Additional info.

Filing a schedule C might have made more sense, but you've already taken the plunge.  

Even with the S-corp designation, you now have to have a SECOND tax return done (no tax, but due 3/15 of each year and there are penalties if it's late) and will have to pay any state mandated franchise fees.  California's tax, even if the corporation makes no money, is $800 a year.    

With a schedule C, you'd only pay the 15.3% on the money that you made after expenses.  With the s-corp, you MUST have the salary on a W-2, must pay the 15.3% and if this creates a loss, you may not get to take the full loss on your tax return in the current year.  (The upside is that you would have reported income to the SSA.)  Your corporation would pay all of the business expenses, including your wages and payroll tax, so if there is any remaining money after your salary, it's only taxed as a distribution (income tax) as opposed to the schedule C (income tax and 15.3% on all net gain).

PS, your lawyer is a lawyer and not your tax professional.  For a small business, taxes *are* a major concern.  Deciding to be an S-corp because the lawyer told you was a great idea was okay, but it would have been BETTER if you'd also consulted a tax professional and found out what the tax ramefications would be.  Do you know how much the tax guy is going to charge you for doing the 1120S, the 940/941s, the W-2s and your 1040 vs just adding a schedule C to your 1040 (your husband being VP doesn't sound like he's doing anything more than investing in your business).

Answer 5

It is not about what benefits you more.  It is about the way it needs to be done.

You need to be an employee of the corporation, withhold taxes, pay yourself a reasonable salary and issue yourself a W2 at the end of the year.