qustion on scorp - tax - is my understanding correct -?

Question

hi
i just formed a scorp= my tax accountant is pretty good.

but i wanted these details from different views, so came here.


here is my situation -

we have a scorp - i and my wife were partners.


now, let us say- for a work done - my client agrees to pay me 15000 a month,ongoing for a period of 1 yr. we are into software busines.

now, how does it work.

this is my understanding.


1, clients pay our Scorp 15000 a month- which adds to 180K per yr.
2. we deduct our losses , expneses etc etc out of it.and say it comes to 140000 after deductions
2,. i and my wife take 70,000 each
3. we pay fica tax on 70,000 from each fo us.

is that all it is ..or is there any other complicated tax involed or am i missing any step here.

do we need to pay the taxes each quarter or half yearly ...instead of yearly

please explain in simple terms

Answer 1

Quartely estimated taxes # 3 payment voucher due the middle of of September 2012 and the last one # due with the final payment for the 2012 tax year due around January 15 2013 for the 2012 tax year.

Here you go you can try and do your own estimated tax calculations at this time in your life for this purpose since you are the only one that would know all of the needed necessary information at this time.

www.irs.gov website and use the search box for 2012 Form 1040-ES (OTC)

Estimated Tax for Individuals



http://www.irs.gov/pub/irs-pdf/f1040es.pdf?portlet=3



Copy and paste the below enclosed website address into your browser address bar for this purpose.



http://www.dinkytown.net/java/Tax1040.html



Enter your filing status, income, deductions and credits and we will estimate your total taxes for 2012. Based on your projected withholdings for the year, we can also estimate your tax refund or amount you may owe the IRS next April 2013.

In 2011, Federal income tax rates were scheduled to increase to pre-2001 levels, but the "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010" left the existing tax brackets in place through 2012.

You probably can find an estimated tax calculator for your state income taxes by going to your state income tax department website and use the search box for estimated tax calculator at that time in your life.

I would hope that you do find the above enclosed information useful for your situation and good luck to you with this matter. 09/18/2012

Answer 2

Listen to figment. Do NOT listen to Tro.



The IRS requires you to consider yourselves both owners and employees and expects yout to get the salary paid through a W-2 from day 1. That involves withholding, deposits, 940s, FUTA, SUTA...and I'm probably forgetting some other form.



As "employer" you match the fica/medicare. As "employer" you deduct these additional expenses on the 1120S. Anything else left over (or the loss) will carry through on the 1120S schedule K-1. Be absolutely certain you file the W-2 in a timely fashion.



I had someone ask me to figure out why their SSA earnings records didn't reflect their income...turned out the SSA didn't have the W-2s because they'd had an S-corp for years and they never turned them in. Now they want to retire and lo, they don't have an earnings history. They records are in disarray and they don't have proof of anything.

Answer 3

You have a good understanding of how an S Corp works, but you missed one thing. You and your wife are employees of the S Corp, so the S Corp has to pay you a salary, withhold taxes from your salary (federal, state, social security, and medicare), match the social security and medicare withholdings, file employment tax returns (Forms 940 & 941), issue a W-2 at the end of the year. Your salary has to be a reasonable amount for the job you do, which may or may not be $70,000 per year for each of you.



Let's say you are a software developer. A reasonable salary for this job may be $80,000.

Let's say your wife does administrative tasks for the business. A reasonable salary for this job may be $30,000 per year.



In this scenario, you would receive a salary (and W-2) for $80,000 and your wife would receive a salary (and W-2) for $30,000. The salary is deductible by the business, so the business's net profit would be $30,000. (This takes the $140,000 you gave less the $110,000 paid to you and your wife in salary.) Then the $30,000 net profit would be reportable on your individual tax return(s) at $15,000 each, assuming that you each hold 50% of the stock.



The entire $140,000 is taxed: $110,000 in wages and $30,000 in net profit of the S Corp. The big issue for the corporation is payment of the employment taxes on your salaries.



Clear as mud?



Edit: You don't pay self employment tax on your profit from an S Corp. Self employment tax is the social security and medicare tax. This is covered through the employment tax paid by the corporation and withheld through payroll.

Answer 4

S Corps that are treated like partnerships issue K(1)'s to the partners of the profit of the company, and pass thru items that qualify

and yes, you will need to prepay at least your self employment tax on 1040ES each quarter

partners are NOT employees

if they were employees, of course they would be paid as employees and issued a W-2, but as partners their share of the profits is reported on K(1) and is self employment if they actively participate in the partnership

Answer 5

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