Save money by minimizing the self-employment taxes you pay as a business owner.
There’s this 20% deduction for Federal income tax called QBI or Qualified Business Income deduction.
This applies to pass-through taxable income less than $157,500.00 for single filers. For Service-based businesses, there’s this extra component that allows you to be above $157,500.00 but you have to be below $207,500.00 for the ‘Phaseout’ range to apply.
I have also found that you can get around paying the self-employment tax ( 15.3% ) on the distributions or also known as draws as well!
To qualify you to need to:
- File taxes as an S-Corp
- Pay yourself a ‘reasonable’ salary for your rendered services. ( Put yourself on Payroll & pay Social Security, Medicare on those wages )
- Still, have $20,000.00 or more in profits left to take as distribution.
If you’re in the Tax Bracket of $82,501 – $157,500 for Federal income taxation then you are paying 24%. With the above deductions, you will only actually pay 4% on your company distributions! You can also deduct things like:
– Self-employment healthcare ( Insurance Costs, Medical Bills [ Must be health-related ] )
– Self Employment tax paid. ( Social Security & Medicare )