Jacksonville CPA | Learning To Perform
So my name is Brandon Mcelroy and the president of Mineva Jackson based tax and accounting firm where we put you first. We never forget that it’s your money. Wait a minute, that’s not mine. Um, so if you have a Jacksonville CPA that is not meeting and exceeding your expectations and helping you achieve your financial goals, these gift Mineva call set up a free consultation for us to give you a free financial analysis and maybe even review a prior year’s tax return for free. So if you didn’t catch that, we’re giving away things for free. So I’m here. If you’re Jacksonville CPA is not talking about the intersection of language and taxes, then you need to come by and see us and look at our beautiful brick wall in our office with our shiny letter, the shiny silver letters on the wall. So we, uh, the, our language expert, we were trying to explain this concept of the s corporation and how it can save a individuals lots and lots of money in taxes. So she had a few questions for me.
Yeah. So you were telling me about, he kept bringing up self employment tax, even when I was under the impression that being under an s corporation that the owner would then be employed by the s corporation. So I was thinking why is he still playing paid self employment tax. So who all has to pay self employment tax.
Okay. So maybe I, maybe this is one of the things, and this is why I’m trying to perform this exercise so I can make sure that I’m getting my point across. So do you remember at the very beginning that I said, so security and Medicare tax is synonymous with self employment tax.
Okay.
So it’s maybe I should use social security and Medicare tax instead of self employment tax because every, the way the tax code is written since FDR setup the social security and Medicare fund, if you’re paying away,
sure
out of your company, you’re required to withhold. So security and Medicare tax,
the employer pays half, which is seven point six. Five percent. The employee pays seven point six, five percent. So total, 15 point three percent. So if you hire joe blow off the street, he doesn’t own your company, he’s responsible set for seven point six, five percent of his social security and Medicare tax and you as an employer, the company is responsible for paying half of that tax. So because you are also an employee of the company, you performed services in this even though you are the owner. And remember we said that when you have an s corporation and you’re the owner and you’re performing services for the corporation, the irs says you have to, you’re required to. So it’s, it’s a mandate put on you by the irs to pay a reasonable salary. And the reason why they do this is they don’t want everyone to quit paying into social security and Medicare because it would bankrupt an already bankrupt. It had more bankrupt on already bankrupt fund. Does that make sense?
So it gets back to your question. If your Jacksonville CPA is not letting you ask questions then or is not giving you the answers to the questions, then you need to give them a call. So your original question was who has to pay self employment tax and I said, well maybe we should say social security, medicare tax, so every person that has earned income, whether it be a wage or whether it be from sole proprietorship type of business, any type of income that they’re earning through, whether it’s carpentry or uh, you know, some kind of a skilled trade or if it’s knowledge work or um, you know, any, any thing you or any type of income you were earning versus passive income, which is maybe you invest money in the stock market and you earn interest in dividends on that money that has considered passive income and is not subject to self employment tax. Does that make sense?
The,
going back to this example of this client, you’d had it a specific example of how we save the client money doing this strategy.
Yes. We
decided that the reasonable salary was $40,000. Correct. And so we determined that we would have to pay social security and Medicare tax on 40,000, right? Seven point six percent. It’s 15 point three percent because you are the owner and the employee, so I mean you are in essence paying all of it, even though the corporation is paying half and you’re paying half of you are really wanting the same. It’s all for your benefit. So if you don’t have a Jacksonville CPA that is meeting your needs and give them a neighbor a call.
So
in this example you have $100,000 total income, we’re classifying $40,000 as a way to. So what’s leftover?
You’re asking me what exactly the amount they’re going to pay in taxes.
So I guess let me restate that. So you have $100,000 total income to work with and have that $100,000 year reclast you’re classifying $40,000 as as an earned income wage. Then how, what amount do we have left to classify
$60,000?
Correct. So $60,000 leftover is not subject to self employment tax or it’s not subject to self to social security and Medicare tax because it would be considered s-corporation earnings. Does that make sense?
Yes.
So these, the tax savings, by classifying that $100,000 to weighs 40,000 minutes as wages, which you’re paying the social security and Medicare on 60,000 as escort earnings, the tax savings would be 15 point three percent of what number? Very good. Let’s see. So you pick up on those very, very quickly, probably because your years as a language expert has sharpened your brain to the point of a well sharpen knife. So 15 point three percent or let’s just say 15 percent of $60,000, it’s like $9,000. Correct? Right. So this was approximately. It was because the numbers are not always to the penny, you know, it’s maybe a hundred and 100 to 2000 or the salary maybe $43,000 versus 39 or whatever. So in round numbers, the example, the customer that has saved was about $10,000 in taxes for one year. Okay. Sorry, do you had a question?
So what did he do with the money?
Uh, he did not pay it to the social security trust fund.
Sounds like a good plan.
So if you’re Jacksonville CPA is not focused on helping you meet and achieve and exceed your financial or life goals and then get Mineva call. So,
um,
actually I don’t know exactly what he did with the money because we not working with him in regards to his personal finances, but I do know that he traveled to Europe. I don’t know if he used that money for that trip, but I do know that he traveled to Europe for several weeks and I do know that he went on a trip all over the United States last summer and I do know that he purchased a new house. So, uh, and I always tell my clients, and I don’t know if you have a Jacksonville CPA that explains this to you, but I, I tell my clients, don’t look at this strategy as a saving you $10,000 in one year. Look at it as saving you $100,000 over 10 years or $200,000 over 20 years. So that’s it for this episode.