Right way to pay yourself? (S Corp, only employee, work full-time at another company, sporadic income)

I'm not an expert but the tl;dr is, you're not going to avoid your tax burden.

You can have pass-through income, which is what most people do with an S-Corp, in which case you pay taxes on it like normal income. You'll have to pay a little extra tax for FICA since you're the employer too, and then the remaining income is taxed as income on you the employee.

I believe with an S-Corp you can setup your accounting much like a C-Corp where the business pays corporate taxes. Keep in mind this is for income the business holds, any money paid to you with be taxed again as income tax on your the employee.

And then lastly, where you're getting confused I think, is as an owner of a corporation, you can receive dividends. So if you the employee does $10k in work but the business makes $20k, you can pay you the owner $10k in dividends. You have to be careful and make sure you pay you the employee a fair salary. You can't just claim all income as dividends to lower your tax burden.

I'm not an accountant or a tax lawyer, I'm just sort of throwing out my loose understanding. I make about $280k/yr and I met with an accountant when I started out. He told me just keep it simple and be a sole proprietor and move to an LLC when I accept liabilities I might need to walk away from (eg: a 5 year office lease should be done as the business - ie, the LLC - and not as the individual, in case I go out of business the following year). But he did say there were no secret loopholes to avoid my tax burden. Write off everything you can argue is a business expense and then you pay taxes on your income.

/r/freelance Thread