AMT vs HMID

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awgee,

Good point. I forgot to mention an in-between step.

My 1099's becomes S-Corp income. My W-2's is what left over after company expenses, including 401-K employee contribution match. Hope I explain well. I go with a very good standing CPA firm, I trust them.
 
"IR - I am unclear. Do you already understand this was an incorrect treatment or did you think that it was a clever way to legally avoid SE?"

Assuming I have no other W2 income, and if I pay myself a $40,000 salary through my corporation, I will only pay SE on that $40,000 instead of the $95,000 or more put through the corporation. As long as the $45,000 is a "reasonable" level of compensation from the corporation to me, I would be avoiding SE on $50,000 which is about $7,500. The accountant I used in Florida did this for me for a few years. That is how you save on SE.

You might tell me that is not legal, and I will be relieved that my days of doing so are far behind me...
 
IR - And the $50,00 is paid to you as dividends? Only dividends paid to an S corp as dividends are passed through as dividends. Self-employment income passes through as self employment income for tax purposes. The S corp owner may pay it to himself as dividends or may call it anything he/she chooses, but for tax purposes it passes through as self employment income. An S corp is a pass through and the character and treatment of any income or expense does not change.

A C corp may recharacterize earnings upon transfer to the owners. It could be interest, dividends, or wages, or ... .

But a C corp pays taxes on the earnings before distribution, and the owners pay taxes again on the interest or dividends. An S corp may not recharacterize because it does not pay taxes on earnings.

Accountants do many things on tax returns which are not in compliance. And they give tons of bad advice. If you call the IRS, you have a 30% chance of getting incorrect information.
 
I was an S Corp. The $50,000 was passed through as capital draws of retained earnings (as I recall) I still paid income tax on it, but not SE. When I was doing this, there was no pref for dividends, so I did not do that.
 
IR - The following is my opinion: If the IRS reviews your return from any years in which "50,000 was passed through as capital draws of retained earnings", your wages will be changed by the IRS to the max amount subject to SE for that tax year. Any amount over the max subject to SE will be allowed to characterized as retained earnings or other forms of distributions. A reasonable salary will be defined by the IRS as the amx amount subject to SE. Just my opinion.
 
awgee,

IR said it well for me; I do see SE tax advantages for having a S-Corp. Tax laws are so confusing; for a while I was able to keep up, now I just have the pro explains to me. Real Estate Laws are very complicated as well; however, much easier to absorb. I admire your level of intelligence.
 
NIR - I don't audit taxpayers. I represent taxpayers in audits, half of whom have been given poor advice by CPAs.

Laing_LIes - I don't know exact numbers. They change every year and there are so many of them, that I look them up when I need them. You may go to www.irs.gov to find the exact number for 2007. It is about $95,000 for social security and unlimited for medicare. The medicare is why some folk think it may be advatageous to run wages through an S corp, but if one has earnngs large enough to save money on medicare through an S corp, reality is that the taxpayer should be using the advantages of a C corp. But tax professionals make a ton of money by advising their clients to run S corps because of the extra accounting and 1120S return. And they know their clients don't make enough to find a C corp advantageous.
 
Too many comments to read. So here is my opinion: taxes suck. If I need to figure out the best way to keep them down I will be contacting awgee.
 
Speaking of the HMID...interesting bill being proposed by Rep. John Dingell that would end the HMID for houses >3,000 sq. ft. Seems to me to be totally arbitrary and capricious. I'm sure there are plenty of older 2900 sq. ft. homes that use more energy than newer energy efficient 3200 sq. ft. homes.

http://www.tinyurl.com/ysa834
 
Once again, legislature have their heads up the wrong a$$, they should be looking at reforming the source of the carbon emissions. Like the coal-based electricity plants and other industries that produce the major carbons and not homes that need 40 light bulbs vs. 20. Geez, and I don't even own 3000sq ft or higher home. It seems rather lame that the goal is to reduce greenhouse gases and to do so, let's find people with large homes and eliminate a tax advantage. Huh?

Why not fine people who commute more than 60 miles a day, or fine businesses with employees greater than 60 miles away for excess "consumption" of fuel and carbon emissions. Why not tax auto makers who create cars that get less than 30mph highway miles, increasing the taxes as the MPG's go down. Why not enact the proposed law to eliminate the incandescent light bulb? Seems like they are once again looking to penalize the consumer household, instead of focusing on commercial end.
 
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