Posted by Pat Turner on 10/25/2012 to
Federal and State Taxes
IncSmart Delaware (Small Business and Startups) - If you work as an employee in the United States, you must pay social security and Medicare taxes in most cases. Your payments of these taxes contribute to your coverage under the U.S. social security system. Your employer deducts these taxes from each wage payment. Your employer must deduct these taxes even if you do not expect to qualify for social security or Medicare benefits. Whenever an employer pays a salary or wages to an employee, the employer and the employee both must pay Social Security tax (FICA).
The S Corporation can be used to allow you to reduce or totally eliminate the payment of Social Security tax. There is a distinction between dividend and wages. The corporation can decide whether to pay you, or a shareholder and officer, a dividend or salary. FICA tax is due and payable on salary and wages. No FICA tax is to be withheld or paid in connection with the payment of a dividend. For example, if your S Corporation makes $30,000 in a given year, you could pay a $6000 salary and a $24000 dividend. You may even borrow $24000. The loan is also tax free. The only drawback is if your corporation is planning or has in place a pension or profit sharing plan. The amount you can contribute is to your pension plan may be a percentage of your salary or wages, not your dividend payments.
By Pat Turner
Starting a Business in Delaware - Delaware Corporation - Delaware LLC
For 10 years, IncSmart.biz Business Services has helped companies and people from all over the world form Delaware Corporations and Delaware Limited Liability Companies. When you call, email, text, message or live chat with our office, expect personal attention. Small business is the heart of IncSmart. #incsmart
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