All in Taxes

Determining Salary and Distributions from Your S Corporation

Freelancers and small business owners can gain a significant tax advantage by electing S Corporation status. This allows owners to avoid the 15.3 percent self-employment tax. This comes with a catch: the Internal Revenue Code (federal tax law) requires S Corporation owners to pay themselves a “reasonable salary,” from which they must withhold income taxes and submit payroll (FICA and unemployment) taxes. This post discusses how the IRS defines a reasonable salary and how you can determine your own.

Self Employment Taxes: Why You Need a Personal CFO

If you run your own business, whether as an entity registered with your state or as an informal sole proprietorship, you must pay self-employment tax on at least a portion of the business income. Self-employment income drives up your tax bill, but you can reduce—or even eliminate—it. Read on to find out more about self-employment tax.