4 ms·

Double taxation isn't related to the salary you get paid but the dividends that a corporation pays out. A corporation pays taxes on income then when it pays it

Double taxation isn't related to the salary you get paid but the dividends that a corporation pays out. A corporation pays taxes on income then when it pays it out as dividends you pay taxes on it again, hence double taxation. As far as I'm aware you are unable to deduct dividend payments from corporate income for the purposes of taxation. So no, its not FUD in that case at all.

dave_sullivan 13y ago
Alright, I'll bite. You're right. But you're not going to avoid the stock market (where you might get paid in dividends) because you want to avoid double taxation. However, when forming a company for the first time, you'll hear double taxation cited as a reason you might not want to form a corporation. This is stupid because you're not going to pay yourself in dividends. Of course there are many reasons you might choose one business form over another -- I'm just saying that double taxation really isn't one of them. Likewise, if you are deciding between digital ocean and AWS -- there are many reasons why you might want to go with one over the other. One of the reasons is not because you lose all your data when you restart a machine on AWS. I mean, look, I'm considering giving DO a shot for various reasons, but AWS losing my data because of some oversight in their service that DO has fundamentally engineered around isn't one of them. In both cases, I'm not saying one is better than the other -- all i'm saying is some distinctions are subtly stupid to the point of being manipulative. As in FUD. That's my full thought process on this matter, I don't think I've got anything past that, haha
- AznHisoka 13y ago
  Hmm.. question for u. Say I start a corporation, with just me and another partner, and I need to pay myself... So the revenue earned by the company that's paid to me. that's taxed once by the company. And then again by me as salary. No? Isn't that how it works?
  - logjammer 13y ago
    No, that is not how it works. Your salary is an expense for the company, paid before any corporate tax is paid, and thus reduces corporate tax. A company that has $10MM in revenue, and $10MM in salary expense will pay zero corporate income tax.
    - gamblor956 13y ago
      A company paying its owner $10mm in salary cannot deduct all $10 million. It could probably get away with paying a six-figure salary (fully deductible), but the rest would be re-characterized as a dividend and the underlying "salary" expense would not be deductible. At the numbers we're talking about in this hypothetical, the corporation would be treated as severely underreporting its tax liability--meaning the highest penalty rates, back interest, and possibly including jail time.
      - res0nat0r 13y ago
        His point is: salaries are an expense.
      - logjammer 13y ago
        My point was that salaries are an expense taken before companies pay income tax, which was contrary to what the parent post guessed. Reasonable salary guidelines are a completely different matter, and I never meant to suggest that a $10MM revenue company would have a single employee who made $10MM. That example is just some pedantic nonsense you made up so you could feel smart, while you were actually just a moron who misses the forest for the trees.
  - gamblor956 13y ago
    Yes and no. What the other comments are ignoring is that the deductibility of salary paid to owners is capped, precisely to avoid the shenanigans they're trying to achieve (i.e., avoiding double taxation using the corporate form). Up to a limit, your salary as owner is deductible to the corporation. Generally, the "safe" limit is usually the current SSI maximum wage. Beyond that, the IRS is very likely to re-characterize wages paid to owners as dividends. While this actually results in a lower (direct) tax to the owner, it usually results in higher taxes to the corporation, plus penalties and back interest. Note that this is generally true for LLCs, S-Corps, and C-Corps, though the precise rules differ based on the type of entity. You'll definitely want to talk to a lawyer or accountant.
- oijaf888 13y ago
  If you run a company and are paying yourself excess profits as salaries or bonuses, you are paying payroll taxes on that money. If you have a C corp you are paying taxes on that money as dividends. If you have a pass through entity of some sort (S corp, LLC, etc) you can avoid paying payroll taxes on distributions and also avoid double taxation. Unless I'm missing something with AWS, what oversight in their system causes you to lose data? They are quite upfront and transparent that your data does not stick around unless you use EBS.
  - jcampbell1 13y ago
    The IRS has been cracking down on people who use that loophole.... The doctor that has $50k in FICA earning and $200k in partnership distributions. Using that kind of loophole is playing with fire. You might get away with it for life, or might get stuck with a $250k tax bill at any time.
    - oijaf888 13y ago
      Isn't that only the case if you are paying yourself mainly via distributions? If you are paying yourself a market rate salary and taking any profits at the end of a good year via distributions would they frown on that? Assuming you have shareholders who don't work in the business (say family) I don't see how else you could distribute proceeds back to them.
      - drone 13y ago
        The self-employment tax covers K-1 distributions, etc. If you're inactive (not actually working for the pass-through entity, only receiving profit distributions) your taxes are additionally higher on those distributions. In summary: typical pass-through entity distributions are typically taxed as self-employment income and subject to the SET which attempts to recover the missing employer's half of tax payments. You cannot avoid all employer's half of taxes by taking them as distributions, and whomever told you that has misled you. Now, what you might actually be thinking here, and would be correct, is that for those who earn less than a certain income (which would place them in the top tax bracket), the effect of applying all of those payments as self-employment income generally results in a lower tax rate than the corporate tax rate, and allows for deductions that companies may not have available to them.
- deleted 13y ago
  [deleted]

dave_sullivan 13y ago

Alright, I'll bite. You're right. But you're not going to avoid the stock market (where you might get paid in dividends) because you want to avoid double taxation. However, when forming a company for the first time, you'll hear double taxation cited as a reason you might not want to form a corporation. This is stupid because you're not going to pay yourself in dividends. Of course there are many reasons you might choose one business form over another -- I'm just saying that double taxation really isn't one of them. Likewise, if you are deciding between digital ocean and AWS -- there are many reasons why you might want to go with one over the other. One of the reasons is not because you lose all your data when you restart a machine on AWS. I mean, look, I'm considering giving DO a shot for various reasons, but AWS losing my data because of some oversight in their service that DO has fundamentally engineered around isn't one of them. In both cases, I'm not saying one is better than the other -- all i'm saying is some distinctions are subtly stupid to the point of being manipulative. As in FUD. That's my full thought process on this matter, I don't think I've got anything past that, haha

AznHisoka 13y ago
Hmm.. question for u. Say I start a corporation, with just me and another partner, and I need to pay myself... So the revenue earned by the company that's paid to me. that's taxed once by the company. And then again by me as salary. No? Isn't that how it works?
- logjammer 13y ago
  No, that is not how it works. Your salary is an expense for the company, paid before any corporate tax is paid, and thus reduces corporate tax. A company that has $10MM in revenue, and $10MM in salary expense will pay zero corporate income tax.
  - gamblor956 13y ago
    A company paying its owner $10mm in salary cannot deduct all $10 million. It could probably get away with paying a six-figure salary (fully deductible), but the rest would be re-characterized as a dividend and the underlying "salary" expense would not be deductible. At the numbers we're talking about in this hypothetical, the corporation would be treated as severely underreporting its tax liability--meaning the highest penalty rates, back interest, and possibly including jail time.
    - res0nat0r 13y ago
      His point is: salaries are an expense.
    - logjammer 13y ago
      My point was that salaries are an expense taken before companies pay income tax, which was contrary to what the parent post guessed. Reasonable salary guidelines are a completely different matter, and I never meant to suggest that a $10MM revenue company would have a single employee who made $10MM. That example is just some pedantic nonsense you made up so you could feel smart, while you were actually just a moron who misses the forest for the trees.
- gamblor956 13y ago
  Yes and no. What the other comments are ignoring is that the deductibility of salary paid to owners is capped, precisely to avoid the shenanigans they're trying to achieve (i.e., avoiding double taxation using the corporate form). Up to a limit, your salary as owner is deductible to the corporation. Generally, the "safe" limit is usually the current SSI maximum wage. Beyond that, the IRS is very likely to re-characterize wages paid to owners as dividends. While this actually results in a lower (direct) tax to the owner, it usually results in higher taxes to the corporation, plus penalties and back interest. Note that this is generally true for LLCs, S-Corps, and C-Corps, though the precise rules differ based on the type of entity. You'll definitely want to talk to a lawyer or accountant.
oijaf888 13y ago
If you run a company and are paying yourself excess profits as salaries or bonuses, you are paying payroll taxes on that money. If you have a C corp you are paying taxes on that money as dividends. If you have a pass through entity of some sort (S corp, LLC, etc) you can avoid paying payroll taxes on distributions and also avoid double taxation. Unless I'm missing something with AWS, what oversight in their system causes you to lose data? They are quite upfront and transparent that your data does not stick around unless you use EBS.
- jcampbell1 13y ago
  The IRS has been cracking down on people who use that loophole.... The doctor that has $50k in FICA earning and $200k in partnership distributions. Using that kind of loophole is playing with fire. You might get away with it for life, or might get stuck with a $250k tax bill at any time.
  - oijaf888 13y ago
    Isn't that only the case if you are paying yourself mainly via distributions? If you are paying yourself a market rate salary and taking any profits at the end of a good year via distributions would they frown on that? Assuming you have shareholders who don't work in the business (say family) I don't see how else you could distribute proceeds back to them.
    - drone 13y ago
      The self-employment tax covers K-1 distributions, etc. If you're inactive (not actually working for the pass-through entity, only receiving profit distributions) your taxes are additionally higher on those distributions. In summary: typical pass-through entity distributions are typically taxed as self-employment income and subject to the SET which attempts to recover the missing employer's half of tax payments. You cannot avoid all employer's half of taxes by taking them as distributions, and whomever told you that has misled you. Now, what you might actually be thinking here, and would be correct, is that for those who earn less than a certain income (which would place them in the top tax bracket), the effect of applying all of those payments as self-employment income generally results in a lower tax rate than the corporate tax rate, and allows for deductions that companies may not have available to them.
deleted 13y ago
[deleted]