Daniel explains how painting business owners can cut self-employment taxes by switching to S-corp status. Instead of paying 15.3% tax on all profit, you take a reasonable salary (about 50% of profit) and the rest comes out tax-free. On $30,000 profit, you'd save $2,000 to $3,000 after filing and payroll costs.
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Hey, this is Daniel from bookkeepingforpainters.com. And I just wanted to go live with you guys and review something. I'm— my audience, the folks that I'm talking to are the painting business owners that run a painting business that is not being taxed as an S corporation. You are likely losing a lot of money. And I'm hoping this evening I'm going to go through why that is and how you can actually save hundreds, if not thousands of dollars by switching to being taxed as an S corporation. It's pretty easy to do. And if you're not sure, hopefully I can help you identify whether you are or not. So Basically in this video, I'm hoping to review this tax strategy with you, switching to being taxed as an S corp, and then some tips on implementing it. So when you first became a painting business, which, you know, you likely were a sole proprietor, meaning that you didn't file to become an LLC, or maybe you did file to become an LLC. Let's, you know, either way. If you did one of those two things, started your business and didn't file as an LLC, or you did file as an LLC, your default way of being taxed is being taxed on your personal tax return. And what that means when that happens is that every dollar that your business makes, 15.3% is going to be taxed at the self-employment tax level, meaning every dollar you make, 15.3% is automatically going to the IRS. It's self-employment taxes, AKA payroll taxes. So even if you only made, let's say, $30,000 in profit, you know, after all your write-offs, $30,000 is what you had left over. 15.3% would be the self-employment rate. You would have to— you would owe $4,590 in taxes. Right? So that is pretty significant. And that's not even including your tax bracket, like your income tax bracket. That's an additional cost on top of the self-employment tax. So being taxed on your personal tax return for your painting business is not a good idea. You want to switch to an S-corp. And the reason why is because you get to choose the amount that you pay those self-employment taxes on. As long as it's a reasonable amount of money. So this strategy alone can save you thousands. And I'll go through an illustration here in a second. So let's take the same case, right? You're a painting business. The profit you had in your painting business was $30,000. You took a salary of $10,000 and the other $20,000 was just business income. So that amount, that $20,000 times 15.3%, you basically save $3,060. You— there's a couple of requirements with being an S corp. You'd have to file an S corp return and you'd have to run payroll for yourself. So, uh, S corp returns usually about, um, $800 or so, um, minus running payroll for the year, uh, a couple hundred dollars. So. You would end up saving about $2,000 in taxes. So, and all you have to do is file a form called a 2553 to switch to an S corp. File form 2553. And you might be thinking like, what, you know, why are you giving this information away? Like maybe it's not in my interest to, or whatever. I'm just tired of really talking to painting businesses that are still, a sole proprietor or an LLC taxes on the personal tax return, and they're literally just giving money away to the IRS for no reason. You need to switch. 96% of the businesses in the US are S corporations. 96%. So this isn't like some kind of secret or, you know, I'm not doing some kind of weird tax strategy. Most, the overwhelming majority of businesses are being taxed as S corporations. So I highly recommend you looking into this. Um, now if you need help, obviously, uh, with filing this form, or you have questions, you can reach out to me on the website bookkeepingforpainters.com and click the contact button. Um, there's a few tips that go along with this tax strategy. Um, as an S corp or being taxed as an S corp, The officer or the owner, in this case you, if you're a sole owner, you have to be paid a reasonable salary, meaning that you can't forego paying yourself a salary. You have to pay a reasonable amount of money, which we, like BookkeepingForPainters.com, we have a matrix on that helps that out. Usually about, as a ballpark, about 50% of your profit goes to you as a salary in general. There are some exceptions to that. However, all right, another thing to keep in mind is if you're a sole proprietor, definitely consider being a corporation because that provides some extra liability protection. And of course, as we talked about, this saves you hundreds, but likely thousands of dollars, even for the smaller painting businesses. So if you're not, if you're not being taxed as an S corporation, um, schedule a free consultation with, uh, with me. I go to bookkeepingforpainters.com, click the contact button, um, at the top right of the website and just click this contact button here at the top and schedule a consultation. I'm available. Have some availability in the next couple of weeks. So definitely do this, especially before the end of the year, as you're reviewing your businesses. You know, it's towards the end of the year, it usually slows down a little bit. I highly recommend you look at, if you're not, if, if you're not being taxed as an S corp, definitely take a look at that for sure. If you're not sure, once again, you can schedule a consultation. To, uh, and I can kind of help you out, identify what you are and, um, provide some recommendations. Um, so this, this one phone call, you know, this free consultation probably will save you a couple thousand dollars. So definitely recommend you, you do that if you're not sure, or if you know that you're not being taxed as an S corporation. All right. I hope you guys are having a good week. And I'll talk to you soon.
