Tax Guru – Ker$tetter Letter

Q:

Subject: article

Thank you very much for your insightful article on S vs. C Corporations. I have a quick question I am hoping you can help me answer. You mention the possibility of double taxation with a C Corp on paying out dividends, what about paying myself commissions? Would that be similar to paying myself a salary? I have a small business, myself and sub-agents that I 1099 each year.

Please advise. Your response is greatly appreciated.

Thank you,

A:

You absolutely must be working directly with an experienced professional tax advisor on matters such as this.

Avoiding double taxation is very easy and is accomplished by shifting income from the C corp to yourself as an individual via expenses that are deductible from the corp’s taxable income and are then taxable income on your 1040.

The most frequently used types of corp expenses for this are W-2 salaries, 1099 commissions, rents, royalties and interest payments. However, these are not equal in the overall tax burden they create because some of these are also subject to payroll taxes, while other ones are not.

That is why you need to work with a tax pro who can look at the big picture to help you achieve your goals, while minimizing the overall tax bite.

Good luck.

Kerry Kerstetter