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Video instructions and help with filling out and completing Are 8850 Form Compensation

Instructions and Help about Are 8850 Form Compensation

I operate an escort for my business just started it last year am i required to pay myself a salary now that is an excellent question just a little bit of background for the rest of you guys out there as you operate an escort that is just a regular corporation that you have made an S selection so that the corporation doesn't pay tax on its own very common for small business owners who may be the only owner of the business to form an S corp because then they have what's called pass through taxation which basically means whatever is earned at the company passes through to the tax return of the individual rather than having to pay corporate tax a very good idea and it certainly makes it a little bit less complicated the S corp still has to file its own tax return a form 1120s but there's a little bit of a difference on how that entity pays tax now back to your specific question you are required to pay yourself a reasonable salary the reasonableness is always a good question because the IRS wants to leave it a little bit open for interpretation but again the key is reasonable first thing to keep in mind since last year was your first year of the business and I'm not sure exactly the detail of your question here so I'll answer it both ways just in case if the S corp is just getting up and going so you don't actually have any earnings for example maybe you just started the S Corp in November and so you haven't even had time to cover your start-up expenses yet if a corporation is not earning money then certainly the IRS doesn't have a requirement for the key shareholder for you to have a salary being paid to yourself because the corporation doesn't have any money to pay you a salary so just the fact that you have no salary not by itself is a problem okay now assume the better scenario and I hope this is the scenario you're in and that is you do have earnings in your S corp for 2022 the IRS does want to see a reasonable wage paid to you for the services you have provided to the company the key point here is and you probably know this but the key point here is the salary that you pay your so is subject to payroll tax that's FICA and Medicare both employee and employer portions so that's important the earnings that flow through from the escort to your personal tax return that have that pass through taxation that are over and above the wages you pay yourself are not subject to those payroll taxes so it's actually better for you as the taxpayer to have the earnings flow from the escort without payroll taxes but that's where the IRS is reasonableness comes in and that may be the point of your question again if that's true you do need to have a reasonable wage because if you don't what you're in effect doing is just avoiding those payroll taxes and that's what the IRS is really looking out for so ultimately a long term I know your escrow is going to be successful I know you're gonna have earnings from that S corp so point blank yes you do need to pay yourself a reasonable salary based on the services you provide to the S corp so hopefully hopefully that's helpful ok next question here how much will be will I be penalized if I take money out of my 401k plan now that's a really good question we got a whole lot of questions of that the last couple of days through mahalo calm because I think a lot of people had a tough year last year and we talked a lot about the economy and things are very tough so a lot of people did have to take money out of their 401k plan so the first thing to keep in mind I'm going to go to a publication here to point you in the right direction a publication 590 has a lot of information about individual retirement accounts the first thing to keep in mind is when you take money out of a qualified retirement plan like your IRA it will be taxable income for you you will need to include that on your tax return and pay regular federal income tax so don't forget to include that but in addition to that if you have taken it out early if you're younger than 59 and a half years old then that is going to be considered an early withdrawal so in addition to being included on your tax return for regular payroll or for regular tax you also may have an additional penalty in the form of 10% more tax now the key point there is if you're under age 59 and a half it is going to be considered an early withdrawal if you're over 70 and a half now you you are required to start taking those distributions so if you're between age 59 and seventy and a half then that 10% penalty is not going to apply but you can see on this publication there's lots of information here now if you have taken that money out the main thing I want you to consider there are a number of exceptions to that 10% penalty so if you go to this publication you'll notice there at the number four on IRAs there's some early withdrawal penalties I'm going to go to this really fast you can see it here when we get down to the bottom on page 52 you'll see here are the early distributions is he right over here to the left and that's the additional 10% penalty that you may be subject to if you're under age 50 and a.

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