I am in the works of becoming a franchise owner of my own industrial supply business.
I want to note that I will be speaking with a CPA but i just want to get some general opinions, etc.
My worry as a business owner is that I would have to pay out a lot in taxes at the end of the year. If my first year in come as a business owner is 60K, would I be taxed a lot?
I am used to getting money each year during tax time, not paying out. I dont want to shoot myself in the foot in this business by having to pay like 2000 in taxes each year.
Max Hoopla2017-09-03T02:21:48Z
As a corporation officer you are a statutory employee and IRS requires you pay yourself a reasonable salary. This is an amount you could expect to earn doing substantially the same job for someone else. Your salary would be subject to the same employment taxes that it was before but your corporation will have to pay them. Any distributions of income from the corporation in excess of salary would be subject to income tax as ordinary income. You would have to make quarterly estimated tax payments to cover them or alternatively adjust the withholding upward on your salary. Some owners of Sub-S corporations don't take a salary and report all of the distributions as their income to avoid paying employment taxes. IRS takes a dim view of this and makes it a prime audit issue that's easy money.
As an S-corp, you must pay yourself a reasonable wage.
For the first year, the amount you need to pay in estimated taxes (to avoid that penalty) is based on the amount of tax you paid the year before--from any source, not just the S-corp.
As an FYI, have your CPA explain to you how inventory works. Until you sell the merchandise, you can't claim an expense. This can cause your taxes to seem higher than they should be.