2

Will paying myself only shareholder distributions instead of payroll, and using the new 20% QBI deduction on my QBI of $300k save me more taxes under the new federal tax plan, and allow me to eliminate payroll for my single employee (me) California S-corp?

I am the only employee of my California S-corp. I began using ADP last year to do semi-monthly payroll, to save a little in taxes (~$2k).

I want to eliminate my time spent dealing with payroll, ADP, and the California EDD.

Under the new federal tax bill, will a change to pass-through entities like, S-corp, can I now stop doing payroll and just pay myself "shareholder distributions", deduct 20% of my QBI (Qualified Business Income) and simply pay self-employment tax (quarterly)?

My QBI will be about $300k. My S-corp is for my software consulting business.

  • 1
    +1, good question, but do you have an accountant for your business? Have you asked him or her yet? – Ben Miller - Reinstate Monica Jan 11 '18 at 14:46
  • 2
    @BenMiller I agree - with 300k annual qualified business income, you should hire an accountant. You need to be able to point the finger at someone if you do something wrong. And you can't get that level of security by asking questions online. – Grade 'Eh' Bacon Jan 11 '18 at 14:50
  • 1
    Building on @Grade’s comment: Under old tax law, the answer would be absolutely not. I have not studied the new law yet, but it’s implications are certainly untested in the courts yet. You do not want to make any early tax avoidance changes without professional help. – Ben Miller - Reinstate Monica Jan 11 '18 at 15:01
  • 2
    How did adding payroll save you money on taxes? I would have thought distributions would always be better than payroll, but you can't do 100% distributions because then you wouldn't have a "reasonable" salary. AFAIK the "reasonable" rule has not been changed with the new tax law. – TTT Jan 11 '18 at 15:23
  • 2
    @DougNull When your daughter and her firm figure out the correct answer, please ask her to post it here. :) – Ben Miller - Reinstate Monica Jan 11 '18 at 17:32

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.