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What should I do?

I started running a e commerce website in June of 2007, but did not officially form an LLC until NOV 14 ,2007.

I filed for an ein as a disregarded entity because I was the sole person with no employees so I thought filing as self proprietor would be the best thing for me

I have no employees, I have no children, no mortgage and I am single.

I made about 100k profit. Than I found out about the self employment TAX.

So I immediately looked for ways of saving some money and stumbled that I am better off electing to be taxes as subchapter S. Which I have only a few days left to do since they give you only 75 days.

I am told I can take a reasonable salary which I decide was half (50k) and take the rest (50k) in distrubtion which are not subjected to FICA. So instead of about 15% in tax I pay only 7%.

However I still pay federal income tax on the entire 100k.

Going by this it seems I will pay nearly 40,000 in taxes when it all comes down to it, does that sound right? Cause if it is, this is total robbery thats nearly half of what I made.

The 100k is after business deductions I did invest 4k in an IRA

I am told the only other way of saving money is a SEP of which I can invest about 20% but I havent looked into this yet.

My main thing is out of 100k I am paying 40k in taxes, what should I do

thanks in advance, and if something was clear let me know

Reply to
the.champ.is.here
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The EIN is for the case where you are an employer, so with no employees you probably should have skipped that step.

You didn't need an EIN, you have no wage-related expenses for your business, the rest is irrelevant to your business taxation (maybe otherwise for your personal taxation).

What you are told is not true in practice. The ability to avoid self-employment tax via S-corp is becoming more limited all the time.

No, I think you forgot to include state income tax.

-Mark Bole

Reply to
Mark Bole

In this era of identity thefts, and vendors sending you Form W-9 to fill out, it is quite prudent to use your EIN and not your SSN.

And if you want a business checking account, 911 laws are being interpreted to mean you need to give the bank an EIN not a SSN.

Reply to
Arthur Kamlet

I'm just sad that after making nearly 100k I have to give up nearly half. Theres gotta be a way to hide the rest ! Just joking.... or am I?

Reply to
the.champ.is.here

I agree with the privacy aspect of the EIN, but my personal experience is that if you obtain one, the IRS sends you repeat reminders and eventually one or more letters wondering why you are not filing employee withholding returns and so on. Eventually, in order to stay out of trouble, I had to call them and explain (again) that I had no employees, so it can be a nuisance.

I have opened a business checking account within the last few years and never had to provide an EIN, so I suppose the policy can vary from bank to bank.

-Mark Bole

Reply to
Mark Bole

That smacks of sloppy preparation or processing of the SS-4. I've applied for two since 2001, and neither has resulted in any employment tax communications.

Reply to
Phil Marti

Seems like you may have underpaid tax, in which case there would be interest penalty as well.

Did you overlook deductions such as health insurance, meals, mileage and other auto stuff, depreciation where applicable, etc?

It is 25% of your salary up to a maximum of 45k or something like that.

Reply to
removeps-groups

No. Based on the facts you presented your total federal income tax and self-employment tax should be just under $31,000. I have no idea what you owe your state(s) for income tax and sales taxes collected from customers.

Reply to
Bill Brown

You are correct. I went back and reviewed a copy of an on-line SS-4 application, and can now see where certain questions were answered as if the sole proprietor were an employee -- a natural mistake for a lay person to make, I think, given the wording on the form and instructions.

It's a good thing I rely on record-keeping skills that are generally better than my memory.. ;-)

-Mark Bole

Reply to
Mark Bole

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