FICA

Federal Insurance Contributions Act (FICA) or employment tax, it is no longer used in tax terminology but some of us old timers still drop the term in our communications.  Today, FICA is broken out into the two respective sub taxes of Social Security matching and Medicare tax matching.

Owner Compensation in an S-Corporation

Owner Compensation

One of the tax attributes of an S-Corporation over other forms of tax entities is the ability to reduce the overall tax obligation.  Naturally the lower the overall tax requirement the more profit generated for the owner(s).  The S-Corporation allows an owner to reduce their tax responsibility via the compensation package assigned to the owner.

What is an S-Corporation?

S-Corporations

Within the family of corporations, the Internal Revenue Service (IRS) grants tax free status to S-Corporations.  It is strictly an IRS term.  In the IRS code, there are several subchapters pertaining to corporations; Subchapter S identifies and regulates S-Corporations.  In essence, S-Corporations are a pass through entity meaning that all income, losses, credits and special deductions are pass-through to the stockholders of the company.

Self-Employment Tax: You Can Stop Staring At Me Now!

Self-Employment Tax

Simply put, this is a tax on your net earnings from your small business operation.  If you are unincorporated, you have to pay this tax.  This includes those in partnership arrangements, and in any form of Limited Liability Company status.  So why don’t corporations pay the tax?  Actually they do, it’s just called a different name. 

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