Can a W2 employee create a sole proprietorship / S corp to funnel taxes?

[gasresident1]

Sorry, I did a search and can't find any old threads going over this.

I will talk to a CPA, but I would like to just have a baseline. My salary next year will be W2, can I create a sole proprietorship or LLC or S corp and pay myself (ie: 300k salary and 100k distribution). I'd like to use this to max out my 401k (I believe it is 25% salary or max 50k) and put money in a cash balance account. Also, I'd like to deduct real estate and expenses from there. I don't understand QBI, but I think that also factors in.

My main question is can I set up a S corp and have my W2 salary funnel into that? Could I still get all the benefits from the W2 and just the salary portion go toward the s corp and cut my tax burden from there?

Thank you!

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[thinkorswim]

My main question is can I set up a S corp and have my W2 salary funnel into that? Could I still get all the benefits from the W2 and just the salary portion go toward the s corp and cut my tax burden from there?

Nope. Any income you want to run through an S Corp or LLC would have to be in addition to your W2, such as income from a side gig or moonlighting. You would also need to pay both employee and employer payroll taxes on that money and the marginal tax bracket would be in addition to your W2 income.

 

[Arch Guillotti]

Who is your employer?

And what real estate are you deducting?

 

[chessknt]

Absolutely not that only works for 1099 and you can’t deduct real estate unless you are doing anesthesia from home

 

[NICMAN]

You mean, you want your employer to make you a 1099 contracted employee with no benefits of a W2? I don’t think w2 classifications are for corporate income.

 

[gasresident1]

Thank you all. W2 at an AMC. So I'm guessing this is only possible for 1099 or K1 partnerships??

So should I ask to switch to 1099 and get the benefits in extra pay?

 

[narcotics999]

Nope. Any income you want to run through an S Corp or LLC would have to be in addition to your W2, such as income from a side gig or moonlighting. You would also need to pay both employee and employer payroll taxes on that money and the marginal tax bracket would be in addition to your W2 income.

That payroll tax part is not totally true. If OP just use sole proprietorship, W2 should cover SS tax. If he/she use s-corp, employer part of SS tax needs to be paid (so highly recommended against). Medicare tax I guess does not matter; you need to pay regardless.

 

[thinkorswim]

That payroll tax part is not totally true. If OP just use sole proprietorship, W2 should cover SS tax. If he/she use s-corp, employer part of SS tax needs to be paid (so highly recommended against). Medicare tax I guess does not matter; you need to pay regardless.

Yes, you are correct. This is assuming the W2 wages are higher than the Social Security tax limit of $147,000. Then in that case, one would only be responsible for employee and employer portions of Medicare tax on any additional income to the W2 income.

 

[chessknt]

Thank you all. W2 at an AMC. So I'm guessing this is only possible for 1099 or K1 partnerships??

So should I ask to switch to 1099 and get the benefits in extra pay?

You can’t just ask to be an ic the definitions exist based on your relationships. If they tell you when to work and substantially control how your job exists you are an employee not an ic.

 

[deleted126335]

Sorry, I did a search and can't find any old threads going over this.

I will talk to a CPA, but I would like to just have a baseline. My salary next year will be W2, can I create a sole proprietorship or LLC or S corp and pay myself (ie: 300k salary and 100k distribution). I'd like to use this to max out my 401k (I believe it is 25% salary or max 50k) and put money in a cash balance account. Also, I'd like to deduct real estate and expenses from there. I don't understand QBI, but I think that also factors in.

My main question is can I set up a S corp and have my W2 salary funnel into that? Could I still get all the benefits from the W2 and just the salary portion go toward the s corp and cut my tax burden from there?

Thank you!

As you are discovering, there is far less ability to be creative about tax preparation as a W2 employee. Even if you do a side gig locums and get a 1099, you can’t legitimately run all of your expenses through the side gig. Only a percentage of them.

 

[narcotics999]

Thank you all. W2 at an AMC. So I'm guessing this is only possible for 1099 or K1 partnerships??

So should I ask to switch to 1099 and get the benefits in extra pay?

Yes or no. You can ask if you can work for them as locum. The problem is that once you agreed to be a W2, AMC is less likely to take you as locum.

 

[gasresident1]

Is there such thing as a K1 at these private practice groups? Is that such a thing and can I count that as a 1099?

 

[Arch Guillotti]

Is there such thing as a K1 at these private practice groups? Is that such a thing and can I count that as a 1099?

You are all over the place and seem very confused.

Private practice may issue a K1. If an AMC does, realize that you aren't really an owner.

Understand the difference between being an owner, employee, or independent contractor.

There are AMC's that treat you as an IC, I really don't understand how they get away with this considering the tax laws.

 

[gasresident1]

God, you are right. Thank you, I feel terrible. I am all over the place. I am strongly considering backing out now and seeking a private practice elsewhere.

Just to make sure, if I join a PP, then I will likely be issued a W2 my first two years, but once I join partner I can request a K1. With a K1 I can can have the flexibility to become an IC as an LLC and treat it as I would a 1099 with deductions.

 

[deleted126335]

Just to make sure, if I join a PP, then I will likely be issued a W2 my first two years, but once I join partner I can request a K1. With a K1 I can can have the flexibility to become an IC as an LLC and treat it as I would a 1099 with deductions.

It is not about you “requesting a K-1” once you are a partner. It is about how their corporation is structured. Don’t worry. The partners in your practice have no love of leaving money on the table or Paying Uncle Sam more than required.

 

[chessknt]

God, you are right. Thank you, I feel terrible. I am all over the place. I am strongly considering backing out now and seeking a private practice elsewhere.

Just to make sure, if I join a PP, then I will likely be issued a W2 my first two years, but once I join partner I can request a K1. With a K1 I can can have the flexibility to become an IC as an LLC and treat it as I would a 1099 with deductions.

Why would tax maneuvers be the primary consideration of your career? If you have a choice between 400k 1099 and 500k w2 the w2 wins easily no matter how many tax gymnastics you conjure up. You aren’t a billionaire trying to hide 8-9 figure sums from the government…

 

[bobg504]

Why would tax maneuvers be the primary consideration of your career? If you have a choice between 400k 1099 and 500k w2 the w2 wins easily no matter how many tax gymnastics you conjure up. You aren’t a billionaire trying to hide 8-9 figure sums from the government…

Of course the 500k W2 job would win in that case. Any reasonably savvy person would know they'd need to demand a higher 1099 pay in order to offset the cost of benefits and employment taxes. All things considered, if you structure your business correctly, you can certainly defer more taxes and save exponentially more via 1099 than W2.

 

[chessknt]

Of course the 500k W2 job would win in that case. Any reasonably savvy person would know they'd need to demand a higher 1099 pay in order to offset the cost of benefits and employment taxes. All things considered, if you structure your business correctly, you can certainly defer more taxes and save exponentially more via 1099 than W2.

Nobody said you wouldn’t but it isn’t like that would warrant pulling out of a good job offer just to save more on taxes. And you have to pay some form of taxes on that money eventually unless your plan is to never use it and leave it to your heirs tax free which seems still very stupid as the sole reason for not accepting a job offer.

 

[bobg504]

Nobody said you wouldn’t but it isn’t like that would warrant pulling out of a good job offer just to save more on taxes. And you have to pay some form of taxes on that money eventually unless your plan is to never use it and leave it to your heirs tax free which seems still very stupid as the sole reason for not accepting a job offer.

But who said anything about "sole reasoning"? Choosing a job is a multifactorial decision. The OP is trying to learn and make financially sound decisions. Their asking these questions doesn't make "tax maneuvers the primary consideration of their career". That is a gross assumption.

 

[chessknt]

But who said anything about "sole reasoning"? Choosing a job is a multifactorial decision. The OP is trying to learn and make financially sound decisions. Their asking these questions doesn't make "tax maneuvers the primary consideration of their career". That is a gross assumption.

He literally posted that he was thinking about pulling out of his job offer and only cited the fact that it was w2 as the reason. That isn’t a gross assumption.