Episode 4: S Corp for Contractors: The $40K Profit Rule
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Episode 4: S Corp for Contractors: The $40K Profit Rule
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In this episode of Tax Strategy with Maya Slivkov, also known as The Contractor Tax Blueprint, Maya breaks down the Forty Thousand Dollar Profit Rule for trade contractors and explains exactly when to switch from a sole proprietorship or single member LLC to an S Corporation.
Episode Timestamps:
00:00 Welcome to Episode 4
00:35 The self employment tax hit for sole proprietors
01:15 How the S Corp split works: salary versus distribution
01:45 The Forty Thousand Dollar Profit Rule break even math
02:30 The two big S Corp mistakes: zero salary versus one hundred percent salary
03:00 The reasonable compensation sweet spot
03:20 Download the S Corp Calculator and wrap up
Key Takeaways:
1. Every dollar of sole proprietorship net profit gets hit with 15.3% self employment tax.
2. An S Corporation divides profit into W2 salary and shareholder distributions. You only pay payroll tax on salary.
3. Below $40,000 net profit, S Corp payroll and Form 1120 S accounting fees eat your tax savings.
4. Setting salary to $0 is the number one IRS audit magnet. Target 40% to 50% for trade contractors.
5. Paid subscribers get the companion Excel S Corp Salary and Tax Savings Calculator.
Connect with Maya Slivkov:
Website: thebookkeepingcomp.org
Vancouver, WA