Transcript
If you don't pay yourself a reasonable salary as an escorp, you can get in serious trouble with the IRS. Here's how to figure out what to pay yourself, how to actually pay yourself, and how doing this unlocks thousands in tax savings. First things first, number one, what counts as reasonable salary. To figure this out, find out what someone in your role with your experience in your area would earn. You can do this by checking websites like Glass Door, Zip Recruiter, Indeed, or bl.gov. Just be sure to document everything. The IRS will ask for proof as to how you came to that number. Two, how do you actually pay yourself? You can't just transfer money from your business account to your personal account and call it salary. You need to set up payroll through sites like ADP, Gusto, or QuickBook Payroll. They'll walk you through the process and get payroll set up for you. Lastly, three, how will this unlock thousands in tax savings for you? Let's say you make 100K in net profit. Without an escorp, you have to pay 15.3% in self-employment taxes on the entire 100k. But with an escorp, you get to split your profit into a salary, which gets taxed normally at 15.3%. And distributions, which doesn't get taxed at 15.3%. That means you only pay self-employment taxes on the salary portion of your income. Boom. That's 7,650 in tax savings. That's why it's so important to choose a reasonable and defensible salary. If you want expert help choosing a salary that won't trigger an IRS audit, book a free call with a Keeper Tax expert today.