How much are you paying yourself and what is your role?

Philip J. Fry

Philip J. Fry

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When a corporation's owner(s) is (or are) also its employee(s), the employee must be paid at an Arm's Length. "[Arm's Length] is used... in contract law to arrange an agreement that will stand up to legal scrutiny, even though the parties may have shared interests", such as owner - employee (see https://en.wikipedia.org/wiki/Arm's_length_principle ).

So, for those who have no idea what I'm talking about, lets say you have a SaaS that makes $1,000,000/year in profit before tax. If you were a sole proprietor (or an LLC), the 1 million dollars would be taxable and its 39.6% over 418k (230k just for that bracket). You could also incorporate, have the company pay corporate taxes (which is less than personal), and then pay yourself a salary. Therefore, you, as the sole owner of the corporation would end up paying less taxes. The thing is, you can't set your pay to $1/year and work 40 hours/week for the corporation. You also can't set it to $100,000/year and work for 1 hour/week. The rate you pay yourself must be market rate... and I'm pretty sure the IRS audits this.

Right now, I'm paying myself $5k/month for part-time work, which puts me at the 75% on marketing director/manager salaries (see http://www.payscale.com/research/US/Job=Marketing_Director/Salary/65eb6027/Strategic-Marketing , the number is for full-time work). I also know 2 guys who own an e-comm business in Vegas. They have a warehouse and 8 employees. They're paying themselves $6k/month -- which, after thinking about it, might be underpayment.

So... yeah... if you could state your role and how much you pay yourself, that'll be great. We can all avoid getting audited by the IRS. Thanks.
 
VP at Ecomm biz, salary + annual profit distributions
Managing Director of Agency, salary + quarterly profit distributions
Owner of publishing company (LLC), no salary just profit distributions as desired
 
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NickEubanks said:
VP at Ecomm biz, salary + annual profit distributions
Managing Director of Agency, salary + quarterly profit distributions
Owner of publishing company (LLC), no salary just profit distributions as desired
Click to expand...

Are you also a shareholder at the ecomm business? (or, in other words, did you set up your own pay?)
What's the agency's structure?

Also... you didn't move the company(s) overseas, did you? That's what I'm doing right now. The last thing I want is something like this http://www.independent.co.uk/news/w...arrested-for-alleged-tax-evasion-8411926.html .

^

Ok. I calmed down.

@NickEubanks, Thanks dude! The first data point looks promising!
 
Philip J. Fry said:
Are you also a shareholder at the ecomm business? (or, in other words, did you set up your own pay?)
What's the agency's structure?

Also... you didn't move the company(s) overseas, did you? That's what I'm doing right now. The last thing I want is something like this http://www.independent.co.uk/news/w...arrested-for-alleged-tax-evasion-8411926.html .
Click to expand...
I am, it's an S-corp, same goes for Agency. So I have market salary for both but am also entitled to take distributions based on ownership percentage.
 
NickEubanks said:
I am, it's an S-corp, same goes for Agency. So I have market salary for both but am also entitled to take distributions based on ownership percentage.
Click to expand...
You must be paying a shit load of taxes.

I'm moving my company to a 0% corporate tax country and don't have to pay personal income tax because of FEIE.

It'll be bad for my health to write a check that large to the IRS every spring.
 
Philip J. Fry said:
You must be paying a shit load of taxes.
Click to expand...

Wanna live somewhere that your taxes protect you and give you a benefit. Pay them with a smile. Feel ripped off? Move somewhere else. I feel like I get a bargain in the UK so I'm not going anywhere.
 
Calamari said:
I thought you didn't pay taxes because of FEIE. This is confusing.
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FEIE stands for Foreign Earned Income Exclusion. The exclusion is up to 100,000 USD/year. So, I don't have to pay federal income tax on my first 100,000 USD... hence why I work part time.

Get it?

There's also other taxes that I have to pay, like Dividends tax (not exemptible), self-employment tax, sales tax, and any fee that goes to the government (like $10 to renew a drivers license).

So, I do pay taxes, but I'm exempt on my first 100k in income tax; which is nice.
 
You can actually skip the self employment tax by having an offshore corp ( IBC, LLC ) located somewhere like Anguilla pay you as an employee while your offshore for your FEIE.

You'll still get the $102k exclusion and now you don't have to pay self employment tax either.

I'd look into forming an IBC, and then setting up salary to yourself from it.
 
eliquid said:
You can actually skip the self employment tax by having an offshore corp ( IBC, LLC ) located somewhere like Anguilla pay you as an employee while your offshore for your FEIE.

You'll still get the $102k exclusion and now you don't have to pay self employment tax either.

I'd look into forming an IBC, and then setting up salary to yourself from it.
Click to expand...

Yeah, I'm aware of that. There's a business where I can't sell the company to an IBC (and therefore avoid self employment tax). The other one, I can.
 
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