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Everything you need to help you launch your new business entity from business entity selection to multiple-entity business structures.
Everything you need to help you launch your new business entity from business entity selection to multiple-entity business structures.
Designed for rental property owners where WCG CPAs & Advisors supports you as your real estate CPA.
Everything you need from tax return preparation for your small business to your rental to your corporation is here.
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Table Of Contents
By Jason Watson, CPA
Posted Wednesday, October 20, 2021
Big shot surgeon compared to the lowly goat herder (non-specified service trade).
Surgeon | Goat Herder | |||||
ln | No S | S Corp | No S | S Corp | ||
1 | Business Income | 600,000 | 600,000 | 600,000 | 600,000 | |
2 | less W-2 Wages inc. SEHI, HSA, etc. | 0 | 210,000 | 0 | 210,000 | |
3 | less Payroll Taxes | 0 | 11,024 | 0 | 11,024 | |
4 | Net Business Income Section 199A | 600,000 | 378,976 | 600,000 | 378,976 | |
5 | Adjustments to 1040 / NBI | |||||
6 | less Social Security Tax | 7,979 | 0 | 7,979 | 0 | |
7 | less Medicare Tax | 8,034 | 0 | 8,034 | 0 | |
8 | less SEHI, HSA, etc. | 0 | 0 | 0 | 0 | |
9 | Other Taxable Income | 0 | 0 | 0 | 0 | |
10 | Adjusted Gross Income* | 583,986 | 588,976 | 583,986 | 588,976 | |
11 | Itemized / Std Deductions | 50,000 | 50,000 | 50,000 | 50,000 | |
12 | Taxable Income Before Section 199A | 533,986 | 538,976 | 533,986 | 538,976 | |
13 | Section 199A Net Biz Income | 120,000 | 75,795 | 120,000 | 75,795 | |
14 | Section 199A W-2 Wage Limit | 0 | 105,000 | 0 | 105,000 | |
15 | Section 199A Taxable Income Limit | 106,797 | 107,795 | 106,797 | 107,795 | |
16 | Section 199A Benefit | 0 | 0 | 0 | 75,795 | |
17 | Marginal Income Tax Rate | 37% | 37% | 37% | 37% | |
18 | Income Tax Benefit from Section 199A | 0 | 0 | 0 | -28,044 | |
19 | plus Self-Employment Tax | 32,028 | 0 | 32,028 | 0 | |
20 | plus Tax on Line 12 Delta (above) | 0 | 1,846 | 0 | 1,846 | |
21 | plus Payroll Tax | 0 | 22,049 | 0 | 22,049 | |
22 | Net Tax After Section 199A Benefit | 32,028 | 23,895 | 32,028 | -4,149 | |
23 | Net S Corp Benefit $ | 8,133 | 36,177 |
*includes the S Corp W-2
There are several notables, takeaways and explanations-
Well, that’s a lie. There are only two. First, specified service trades or businesses got hosed in the Section 199A calculation. Being a goat herder raking in $600,000 as compared to a surgeon gets a $36,000 bump in tax benefit. If you give it careful consideration, how are these two businesses different? While we are being a bit facetious here, at the same time two business owners are experiencing different tax worlds based on titles. The goat herder could be operating with a staff and not relying his or her reputation or skill.
Second takeaway, although specified service industries such as accountants, doctors, attorneys, etc., are not enjoying the Section 199A deduction benefit, it still pays to be an S corporation. There is still a savings of $8,133 by being an S Corp for the big shot surgeon. You have an obligation as a citizen to reduce your taxes to the minimum allowed.
Please review our previous chapter for more information and expanded definitions of specified service trade or business.
Taxpayer’s Comprehensive Guide to LLCs and S Corps 2023-2024 Edition This KB article is an excerpt from our 420+ page book (some picture pages, but no scatch and sniff) which is available in paperback from Amazon, as an eBook for Kindle and as a PDF from ClickBank. We used to publish with iTunes and Nook, but keeping up with two different formats was brutal. You can cruise through these KB articles online, click on the fancy buttons below or visit our webpage which provides more information.
Please use the form below to tell us a little about yourself, and what you have going on with your small business or 1099 contractor gig. WCG CPAs & Advisors are small business CPAs, tax professionals and consultants, and we look forward to talking to you!
The tax advisors and business consultants at WCG are not salespeople; we are not putting lipstick on a pig expecting you to love it. Our job remains being professionally detached, giving you information and letting you decide within our ethical guidelines and your risk profiles.
We see far too many crazy schemes and half-baked ideas from attorneys and wealth managers. In some cases, they are good ideas. In most cases, all the entities, layering and mixed ownership is only the illusion of precision. As Chris Rock says, just because you can drive your car with your feet doesn’t make it a good idea. In other words, let’s not automatically convert “you can” into “you must.” Yes, it is fun to brag about how complicated your world is at cocktail parties, but let’s not unnecessarily complicate it for the bragging rights.
We typically schedule a 20-minute complimentary quick chat with one of our Partners or Senior Tax Professionals to determine if we are a good fit for each other, and how an engagement with our team looks. Tax returns only? Business advisory? Tax prep, and more importantly tax strategy and planning?
Should we need to schedule an additional consultation, our fee is $250 for 40 minutes. Fun! If we decide to press forward with a Business Advisory or Tax Patrol Services engagement, we will credit the consultation fee towards those services.
Taxes are complicated. We make them simple. Get in touch with a pro here at WCG!
Everything you need to help you launch your new business entity from business entity selection to multiple-entity business structures.
Designed for rental property owners where WCG CPAs & Advisors supports you as your real estate CPA.
Everything you need from tax return preparation for your small business to your rental to your corporation is here.
Fermentum aliquet amet
tristique purus vitae. Adipiscing
id rhoncus quisque mauris amet.