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by alexsolo 5877 days ago
It's good for the company, that makes sense.

What I don't get is, if you pay yourself $100K, aren't you personally taxed on your 100K income?

Or, will you claim you only had a 100K - 80K = 20K income on your personal taxes? I would think the government would try to match up the $100K company expense with a $100K personal income (and if they don't match, audit you).

I'm actually really curious if you can pull this kind of thing off.
2 comments
angilly 5877 days ago
My position is that the salaries were really just our egos. We didn't have the money to pay ourselves over $100k. The $20k "example" is actually pretty close.

Ideally, take what you can to pay your mortgage. Put that on the books. Spend time getting profitable instead of balancing the books. If you become profitable, or get a nice round, it'll all work out :)

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notauser 5877 days ago
You are correct that taxes would be owed on $100k of personal income.

This may be less than the expected saving from avoiding corporate income tax due to:

- Tax free personal allowance (soon to be $15k for the UK).

- Tiered rates of personal income tax (for example a 10% lower band up to a threshold).

- Deductions or grants for persons working in enterprise zones/for small companies/for start ups/for technology companies/in strategic industries which are only reclaimable once personal income crosses a threshold. (Common in places like Northern Ireland.)

- Employees and employers not in the same tax region, allowing for {evasion|avoidance} schemes.

The whole thing gets really complicated very quickly, and if your two man startup is engaged in tax manipulation to that level you are probably missing the forest for the trees. If a $20k tax saving distracts you from a shot at a $1bn market you are doing it wrong.

(Unless you know a huge check is arriving next quarter, or some other special circumstance applies.)

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