I am the sole shareholder and only employee of an S corporation. I understand that all profits of the corporation are passed through and taxed as income to me. I also understand that all dividends paid to shareholders are taxed at the lower capital gains level (and if I am wrong on this, please correct me.) Finally, I am paying myself a reasonable salary compared to my area.
Is there an easy way to understand how to figure out the minimum I should pay out in dividends such that I don't have to pay taxes on the profits as ordinary income?
- Business Income before Expenses: $15,000
- Payroll Paid: $7,000
- Employer Taxes & Other Expenses Paid: $3,000
- Remaining Credit Card Balance: $2,000
Does this mean I need to pay out $5,000 in dividends in order to avoid the tax on the profits? If I am not making any sense, please enlighten me... I'm learning all of this stuff as I go!