Jacksonville CPA | More Than Rudimentary
So welcome back to the podcast. My name is Brandon Mack. Roy, a president of Mineva Jackson will base, should I say, Jacksonville or Jacksonville, Jacksonville, Jackson Deville based tax and accounting firm. Mineva means to lead, guide and direct if you have a Jacksonville CPA or if you don’t have a Jacksonville CPA. So you have a Jacksonville CPA that is not meeting or exceeding your expectations and helping you achieve your financial goals. And by all means, give me a call. So here today we’re talking with a language expert. Uh, we’ve taught our podcast for today, the intersection of language and taxes, and making sure that we communicate tax concepts clearly to our clients. Now I know not all of our clients want to understand the tax code. Neither do I in great detail, but they should always at least have a rudimentary knowledge of tax concepts to make sure they’re taking full advantage of the laws that are there and paying as little tax as legally possible. So we’re going over the s corporation strategy. So let’s kind of, because I know sometimes repetition
bring a concept to clarity in one’s mind. Going back to the example of job bricklayer, he was originally set up as a sole proprietorship, correct?
Right. And then he
was advised to form an escort as corporation. Okay. So as a sole proprietorship, do you remember what types of taxes he was subject to? Self employment tax, and what percentage was that? Thirty percent self employment tax is 15 point three percent.
Okay. And then
federal tax federal tax is based on the amount of money you make. It’s progressive, right? Does that make sense? Self employment tax is based on a flat percentage of. So it’s if you make a dollar, it’s 15 point three percent. If you make $100 to 50 point three percent, does that make sense? Yes. So it’s two very different types of taxes, but I’ll figure it on the same tax return. So if we could reclassify that earnings into another category. Does the s corporation category earnings category versus the Self Employment Category? We can save money on self employment taxes. Does that make sense? Yes. Okay. So if you’re Jacksonville CPA has not done a detailed tax plan or met with you and does not. Have you write down your goals, then please give us a call and we will give you a free consultation and free financial analysis of your business. We’re a membership only accounting firms and we are not like the typical Jacksonville CPA. So if you’re making. No, go ahead.
Can you give me an example of actual numbers of a time when someone made this shift and how much did it save? How much it saved?
Oh yes. I have lots of examples, but the one that sticks out in my mind is a gentleman that is. And I hesitate. Let me not say exactly who he is because, um, because anyway, I just, I don’t want you to match income figures with, with someone who baby associated with, with me. Um, so anyway, we’ll just keep this identity hidden. But he’s been a client for the last three years, I believe when he first came to me he was set up as a sole proprietorship
he had his wife. We’re, we’re just transitioning from being a while. His wife was, had a side business and he was transitioning from being an employee to being self employed person
and uh, they
gang right at $100,000 a year. And so they were paying self employment taxes of about 15 point three percent, so roughly $15,000, plus they were paying their federal income taxes. So we converted him to an s Corp, he had his, his clients pay him, pay his s corporation instead of paying him individually. And then he reported the s corporation earnings on his tax return. And one thing we haven’t covered yet, but the caveat to for an s corporation is if you are an officer because it makes total sense to just form an s corp, never pay self employment tax again. Right? But if, if the government allowed that and so the social security fund in Medicare fund would go bankrupt, is that, does that make sense? So if you have a Jacksonville CPA that is not meeting your needs and give us a call and uh, we can talk with you about language and taxes.
Sure, you would be thrilled. So the, the other big caveat to having an escort operation and being a single owner make could be just you or it could be view and some employees is if you perform services as an employee, which I do for my business and the majority of escort owners do, then you’re required to pay yourself a reasonable salary from your s Corp. So if you form an s corp, you have two roles. You have the owner role, right? BecauSe you were the owner of the escorp and you are also the employee of the esco as well because you perform. Some are but the majority of the services in the esco pressure. Does that make sense? So as an employee paying yourself a salary, you’re required to withhold. So security and medicare taxes and pay 15 point three percent on the salary because it is a considered earned income. So that the key to the escort is if in this example, if you’re making $100,000, but you can prove and make a case that a reasonable salary is only $40,000 for your position in the company. Maybe you have employees that are are helping you make the other 60,000, you’re paying self employment tax on only what
ability to go over that again or should I do you need to go consult with the jackson cpa?
Okay. So if You haven’t asked corporation and the total net earnings that come that are coming in or $100,000. Right. But the irs says you can’t just declare all of that as an s corporation earnings. You have to pay yourself a reasonable salary because you were an employee as well as the owner. Got that so far? Yes. So you say, okay good. Well a reasonable salary would be $40,000, not $100,000. Even though total company made 100, we have to at least classify $40,000 as salary and salary is subject to self employment tax, social security and medicare got that so far.
Why would it be subject to self employment tax?
It’s just Because that’s the category of earnings at the irs says it’s just written into the code. So every person that has a salary, a wage being the key term, if you pay wages, you’re required to pay social security and medicare because that’s the way mr socialists as fdr set it up. Does that make sense?
Because we got to pay for all the old geezers going into the hospital.
So go ahead. So you’re paying taxes on the 40,000,
you got it. So does paying self employment tax on 40,000 sound a whole lot better than paying self employment tax on 100,000. There you go. that’s the whole strategy of the s corporation. Does that make any more sense?
Yeah. So basically how much did it save the individual that you were speaking about? The.
That’s exactly what I was just going to ask you. It looks like our time is up. If you don’t have it, if you don’t have a jacksonvillE cpa that is give going over these things with you, then please give them a call.