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If you fall into one of these three categories, this article is for you: 1) a sole proprietorship, 2) You are a member of a partnership or 3 own) you are the owner of a private limited liability well-being as a taxable individual company or a partnership. What they have three types of entrepreneurs have in common? They are all with the dreaded self-employment (SE) tax on the profits of their companies face. If you are new taxes in the world of small business, here’s a quick check of the self-employment tax. Individual entrepreneurs and sole proprietors such as taxation (ie partnership, partners and owners who have elected LLC’s attention as a corporation are taxed) to 3.15% of their profits in Germany pay taxes to the federal government. This consists of 12.4% Social Security tax and 2.9% Medicare tax. In fact, it is the self-version of the employee / employees of the federal payroll tax of 15.3%. Employees and employers pay half of the Reach 15.3%: But here där frustration starts to rear its ugly face. The self-employed pay the whole 15.3%. So what’s a self-employed to do? There is a particularly effective strategy to reduce tax Legally self-select to be taxed an “S” Corporation. Here’s how it works. In 2009, the self-pay SE tax on the first 6.800 to profitability. Suppose you make, 000 profit this year (revenue minus expenses). You must pay SE tax on all income, so that your SE tax, 180 (, 000 x 0.153). But if you look like an “S” Select Corporation ask taxed, you-can Legally SE tax by structuring your compensation fund as a combi nation of wage or salary (which you now need to do your taxes for a corporation) is reduced and profits . Assuming that you can pay yourself reasonable compensation to, 000 in wages, salaries will only be the subject of the 15.3% SE tax (pray now, “Payroll Tax” instead of SE tax). be the payroll tax on, 000, 355: The remaining Can 000 in earnings be paid to you, if you will, but it does not fall under the payroll tax, because “only wage / salary is subject to income tax ARE converted into a public company bottom line. . Compare that to the, 180 in SE tax and Legally you lowered your taxes village, 825th two important limitations: first, that only SE taxes (or payroll tax) This will not reduce this strategy reduces income taxes, as Regard less. the company (self-employed or companies), total, 000 are subject to income tax. Secondly, now that you pay yourself wages or salary as an employee of a company, must the company do all the paper work “associated with the payroll Comes. You have to issue even bona fide paychecks (which means that no withholding tax calculations must ask the donor). You also need to “file all required federal, state and local payroll tax returns, and all necessary federal, state and municipalities make payroll tax payments. This can be quite working a mountain of paper and you should probably Outsource Payroll These tasks. This is a new cost lead to an accountant or bookkeeper to wages and salaries, but to come out most small business owners in this situation is still way to rent in the future.