Reasonable salary from S Corp & payroll taxes

[kkuch]

Hello all. I'm very new to The Tax Book, but I've already seen a bunch of this message board and appreciate all the time and effort you guys put into helping one another. Looking forward to contributing soon!

I have a client who is a Veterinarian. She has a full time job making 200k on payroll. She also has side jobs that she runs through an S Corp. She makes about 40k gross on the side jobs and roughly 30k net. I know she needs a reasonable salary from the S Corp, but what about the payroll taxes? She's already maxed on social security taxes through her full time job. If we decided her reasonable salary is 15k from the S Corp she would lose out on the employer withheld social security tax correct? Or is there a way to get that back considering she's maxed out at her full time job? Or not pay it? Obviously the employee portion she will get back on her personal tax returns.

Thanks in advance. I really appreciate it!!

[kathyc2]

What led you to decide that 1/2 (15K) of net income is reasonable? Are the profits derived from having employees and/or a substantial investment in the corp? Or, are the profits derived solely from her time and knowledge?

[rbynaker]

The S Corp is still responsible for remitting SS taxes. The S Corp will not get their 6.2% back. I'm not convinced an S Corp is the best choice of entity here.

Rick

[kkuch]

kathyc2 We took her hourly wage from her full time job and multiplied that by the amount of hours she spent working on corp related activities. It worked out to 19k (not 15k my apologies) of the 30k net profit. 11k taken as distribution. No employees and profits solely from her. Are you suggesting it should all be taken as salary?

rbynaker Completely agree. Client insisted on becoming S Corp (before me) because that's the only way the side job companies would pay her (we're in CA). I would assume SMLLC would be the best option considering protection of assets and maxed on wages. Do you think closing S Corp and opening SMLLC would be wise?

Thank you both!

[sami]

I would have kept the business entity as Schedule C as long as she keeps her full time job. This way she can save on S/E taxes.

[kathyc2]

I agree on Sch C. Was the company formed as an LLC that opted to be taxed as a S? Or was it actually organized as a corp? If formed as a LLC, you would just need to file 8832.

[kkuch]

Unfortunately it was formed as a corp so she would have to dissolve corp and open a new company. Thanks again!