You don’t pay federal taxes on an S-Corp. The income gets passed down to the owners based on ownership percentage in the form of a K1. Then it’s taxed at your normal income rate unless it’s long-term capital gains, which have different rates.
I pay myself $60k a year, that’s it.
On $1M in profit? You should at least max out the SS cap.
Why? I’d rather put that money in index funds or real estate for better returns than social security.
Because it’s about staying within the tax rules, not just about returns.
A $60k salary on $1M profit? That’s pretty risky for an audit.
That’s all I need to live. I own my house, etc.
It’s not about your personal needs. You need to pay yourself a reasonable salary for the job you do. Would you really pay someone else $60k to do your job if you hired them?
Just to clarify, the IRS only gets involved if you’re taking distributions along with that salary. They can’t force you to pay yourself more but could reclassify distributions as wages.
I guess a reasonable salary would be around $100k.
That’s something to discuss with your CPA. They’ll know what a fair salary would be for the IRS, better than we can guess here.
You should let your accountant handle this and stop getting advice here. A rough estimate would be about 35-40% of your net income in taxes.
Because if you leave it in the business and take it out later, you could end up paying a higher tax rate.
The business doesn’t pay income tax, it’s the owners who do. Their rate depends on their situation, so there’s no single tax rate that applies.
Not sure where you’re seeing 1.5%. You’re probably looking at at least $300,000 in federal taxes.
Seems like he wants to reinvest the profits back into the business or related investments.
Yeah, I’d rather do that than hand the government money.
That’s a valid plan, but just make sure you’re not overspending just to save on taxes. Spending $100k to save $37k in taxes isn’t worth it unless the purchase is truly worth it.
Unless he has capital gains.
The 1.5% is probably from California. They charge an entity-level tax for S-Corps.