

Ask HN: Payroll Tax Hacks - loschorts

Hi there, does anyone out there have payroll tax hacks?  C-Corp with only 3 founders, no other employees, and a small amount of money invested (less than $100k).  We want to pay ourselves, and that's about it.<p>Does anyone have any payroll tax hacks?  One (uneducated) thought I had was to not pay salary but use company money to pay for various expenses like dinner at the office.  I read somewhere that doing one large payment of salary is cheaper than periodic payments.<p>Any ideas?  Thanks.
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triviatise
one large payment is not cheaper than periodic payments. You can use company
money for non business expenses but the IRS may catch up to you at some point.
The penalties are not that stiff, but I wouldnt do it. It would be better to
put your effort into building your business.

Here is one (IANAL and you need one to do this - if you need one I can
recommend one)

Form an LP, make your C corp a general partner in the LP, you will be officers
in the C corp. You will be limited partners in the LP. This gives you
liability protection. The LP becomes your operating entity. Money flows into
the LP from clients. It turns out that LP's can distribute money to limited
partners without paying social security tax. There is no minimum salary
required to do this. Your actual employees can be employees of the C corp as
usual.

You will save around 15K/year per person who does this.

If you want to get money out completely tax free, look up a SEP IRA. The SEP
ira lets you contribute 25% of your income up to 49K tax free. But it must be
available for all employees. The company can contribute up to 50%.

Meals are only 50% deductible and it probably isnt worth doing, but if you
guys go to dinner and talk business then your should. But if you put your cars
into an LLC you can have your C corp pay the LLC and then deduct all car
related expenses (insurance, gas, maintenance, interest). You can do the same
with medical related expenses. IANAL - get a lawyer who understands how to do
this.

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veyron
There are structural advantages to keeping it a C corp (ie when raising
money). LP and LLC have no real conception of shares in the same was as the C
corp

Money in an IRA is still retirement money (not cash in hand) -- you have to
pay tax if you want to get the money this year

Meals are 100% deductible if you are working -- read irs publication 15b on
fringe benefits

For the cars, you can also opt for the 50 cent per mile deduction (useful in
high mileage situations)

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veyron
Note: If it's a C corp you don't have to take salary (iirc only S corps have
to declare at least one person taking salary) and you can keep money in the
firm (LLCs and LPs aren't structured to do this well), so you don't need to
take any money out that you don't need personally.

As a general rule, the less money you need to pay yourself, the better.

1) If you turned profit in the same year you made the investment, you can
return almost the entire original investment to yourselves with no tax
penalty, derisking your individual stakes

2) You can pay dividends which are taxed at a lower rate (you dont have to pay
FICA)

3) You can institute a buyback (so that the company buys back outstanding
shares at a higher valuation). This is a little sticky because you can't
arbitrarily inflate the valuation (the technical term is "arms-length",
meaning that it should be a fair value that disinterested parties could find
acceptable). The transaction would be seen as capital gains, and you have the
flexibility of controlling timing and amounts.

4) Almost everything you can think of is a business expense:

\- Food (of course)

\- Cars (oh god there are a ton of deductions related to business vehicles and
vehicles used whilst commuting)

\- Parties (You have to hold shareholder meetings at one point in time ...)

Though I imagine this is better discussed over email.

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maxbrown
IANAL or a finance guy so forgive me for not knowing the specifics of this,
but can't you issue dividends that are taxed significantly lower than payroll
which requires income tax? Or is this only capital gains?

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veyron
ordinary dividends are taxed like income. the only difference is that you
don't have to pay FICA (social security and medicare) on that money.

This year, self-employment social security is 4.2% + 6.2% = 10.4% up to wage
base of 106800 and medicare is still 1.45% + 1.45% = 2.9% --> 13.3%

(the reason why there are two numbers for each part is that there is a portion
the "employee" must pay and a portion the "employer" must pay. The Obama
payroll holiday only extended to the employee portion.

~~~
triviatise
you dont pay SS tax but you pay two income taxes. Regular corporate income tax
then personal income tax on any distributions.

~~~
veyron
for a C corp the income taxes are deductible up to a reasonable amount (so its
not quite two full income taxes). At a small level, it may more sense to make
salary payments rather than dividends (depends on the scale)

last i recall, pub 535 discussed this

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gallerytungsten
Hire a payroll service. Find one that guarantees they will do all the filings,
on time. You write one check and don't have to do the paperwork.

~~~
staunch
Quickbooks Online will handle this for ~$30/mo. They transfer the money
directly out of your account and handle state/fed taxes, etc. Really easy.

I don't think that's what he's asking about though. I think he's asking if
there's any legal strategies to make your money go further when you're both
employer and employee.

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solsenNet
most companies this size pay the 3 individuals on 1099, ie independent
consultants. no payroll tax on 1099 (at the company level)

~~~
captk
Be careful, the IRS is on the lookout for misclassification of employees as
independent contractors. It wouldn't be too hard to figure out either, since
the majority of your income would be coming from a single "client" on your tax
returns, and that amount would match the totals for the company. Make sure you
read and understand the rules or you could end up liable for penalties and
back taxes.

[http://www.irs.gov/businesses/small/article/0,,id=99921,00.h...](http://www.irs.gov/businesses/small/article/0,,id=99921,00.html)

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newman314
What if it's for a single person LLC? I'm interested in payroll hacks for that
too.

