C-Corp Bonuses vs. Dividends

[qbnito]

Originally Posted by OldJack

I guess I have just not been explaining it very good. You must treat the S-corp as a separate individual not related to you. Yes, you have the facts straight that you have to pay your home mortgage out of your personal funds, but you are not recognizing that the interest on your home mortgage is your personal mortgage interest and not your S-corps interest. You would deduct the mortgage interest paid personally on your 1040 Sch-A. If you loaned the S-corp money then you would have a note signed by the S-corp and the S-corp would pay you interest and have an interest deduction (from the note debt) on the S-corp books with you reporting taxable interest income, from the note, on your 1040 Sch-B.

Do not confuse the S-corp and the sole-proprietor entity where if the sole-proprietor business used the mortgage proceeds the interest may be deducted by the sole-proprietorship on the 1040 Sch-C as business interest. Remember, an S-corp is a separate individual and does not owe the mortgage company and therefore cannot deduct the mortgage interest.




S-corp distributions are not taxed as the S-corps total yearly "profit" is passed through to your 1040 Sch-E and taxed. So, take distributions as much as you wish, and for whatever purpose, as long as you have cumulative profits available to take the S-corp distributions and they will be tax-free to you and not deductible by the S-corp.

I don't know now. The CPA I went and spoke with has me on another direction here. So S-Corp distributions are just the company loaning me money more or less, and actually show up as profit.

The CPA I spoke with told me that those distributions would have a tax on it of just Federal. No SS, or Medicare. Then at the end of the year, I either had the option of taking my profits as distributions, or leaving it as profits. I'm guessing he just turns his clients in as distributions. I made this clear. I told him I wanted to pay the lowest tax possible, and this is what he proposed. Initially I went in wanting to be a C-Corp. If this is the case that I'd have to turn my year profits in as a salary, then there is something wrong here. And obviously, I am confused. And should this be the case, I'd much rather go with the C-Corp, and take the 30% overall corporate tax, and the measley 15% I'd try to stay in personal, plus 15.3% payroll for a total of 30.3% personal with a lower amount, instead of taking a full salary in a S-Corp which would put me in the 33% (or higher) Federal 15.3% Payroll, and no Florida tax for a total of 48.3% (or higher).

Aside from deductions, ect, what's the overall tax saver on $100,000?

I think you are confused because you are hearing or reading it the way you want it to be instead of the way it is!

First.. An S-corp does not pay "income tax" as the profit is passed through to the shareholders 1040 Sch-E and taxes paid by the shareholder. Therefore, the shareholder is going to pay all taxes on the profit wheather he takes the money out (cash distributions) or leaves the money in the S-corp. Since the shareholder has paid the tax on the profit the shareholder is allowed to receive the profit (cash distributions) without paying any tax again. A S-corp cash distribution is not a loan, it is just a distribution of the profit. The S-corp made a profit.. the shareholder pays tax on the profit... the shareholder can take the money out or leave it in, but it is "already-taxed" cash so regardless of when it is taken out it is tax-free to the shareholder.

A C-corp pays its own tax once and the shareholder is not taxed until it receives money from the C-corp.

I doubt that your CPA is confused.. rather you are just not understanding him like you don't understand me. He is not taxing only the distributions as the form 1120s-k1 required to be filed only allows for the "profit" to be on the taxable line to the shareholders. His tax software puts the profit on the line and not the distributions. Trust your CPA to lead you in the right direction. He is a pro and has a piece of paper to prove it!

[qbnito]

Hey Jack. About the mortgage interest payments. I've mentioned it before but it hasn't stayed on the surface. When I say reimburse me for my interest paid, I mean like 15% or so that I use for the home office deduction. That's the reimbursement I'm speaking of. Not the whole thing.

All in all. I just don't want to pay any more than I have to, or what's required of me. Simply because the CPA doesn't want to take the time to do the numbers to my benefit because he is "lazy", I don't like laziness, nor will I stand for it. CPA, with his little peice of paper or not. I want the best, and I'll pay for the best if he can save me money.

I think the thread has served its purpose, I'm alot more clear on several things now since discussing this with you. I'd like to thank you for taking all this time discussing/debating this, and I'll keep you posted on the whole process.

Originally Posted by RichardOvervold

Hey Jack. About the mortgage interest payments. I've mentioned it before but it hasn't stayed on the surface. When I say reimburse me for my interest paid, I mean like 15% or so that I use for the home office deduction. That's the reimbursement I'm speaking of. Not the whole thing.

The corporation can only reimburse you and take a deduction against profit for the amount of the worksheet on page 24 of publication 587. That worksheet, of course, would allocate a portion of the mortgage interest on a "square footage" basis for office used by the corporation. The worksheet also allocates other home expenses related to the office.

Good luck Richard.