Best way to pay yourself

Technically speaking, the IRS is completely wrong about pretty much everything they claim, but arguing your [correct & truthful] point all the way to the Supreme Court could take decades.

A few years back, the IRS changed "their" [not Congress's but "their"] interpretation of the S-Corporation statutes so that if you are an officer of the corporation, who provides "substantial" labor to the corporation, then you're an employee of the corporation.

So to get around that little bump in the road, you need to find people whom you trust with your life [father, mother, father-in-law, mother-in-law, sister, brother, etc] to serve as the officers of the corporation [Prez, VP, Treasurer, Secretary, etc].



For example, if your wife were the Treasurer, and if she were actually doing the books for you, then that would be a "substantial" contribution which an officer was making to the corporation, and it would classify her as an employee.

But if your wife's sister knew a thing or two about bookkeeping, then your S-Corp could send a check to your wife's sister for the bookkeeping, and that would protect your wife from becoming an employee of the corporation.

One of the key legalistic points you have to enforce, with an iron hand, is that a check is NEVER written to you PERSONALLY; a check may only be written to the official accurate correct & proper name of your LLC or S-Corp [as it was recorded with your state's Secretary of State].

You never allow any commercial business to transpire as though you were some sort of flesh & blood civilian; you only allow business to transpire between business fictions; and especially you only accept checks which are written in a proper business-to-business manner.

In particular, if a broker or any trucking company ever asks for your personal Social Security number, you NEVER surrender that Social Security number to them.

!!!!! NEVER !!!!!

Surrendering your Social Security number to them is enough to get a 1099 filed, which then establishes an employer/employee relationship, and you've completely screwed yourself as to any advantage there would have been in maintaining an LLC or an S-Corp.

!!!!! NEVER SURRENDER YOUR SOCIAL SECURITY NUMBER !!!!!

And if you've got a potential new "client" who is demanding a Social Security Number from you, then you turn around and walk away from them.

Surrendering your personal SSN to even just one client could ruin your entire LLC/S-Corp structure.

The ideal situation for, say, a middle-aged married man, is to have his wife [who maybe works as a nurse, or as a teacher] paying the day-to-day bills for the family, as an obvious and unquestionable employee [of, say, a hospital or a school], which then leaves the LLC/S-Corp husband free to start accumulating liquid capital in the LLC/S-Corp [because he doesn't have to pay any of the family bills, so he doesn't have to move any cash OUT of the LLC/S-Corp].

Technically speaking, the IRS can't touch that liquid capital in the LLC/S-Corp, but, of course, the IRS cheats, and gets a writ to seize it anyway, blah blah blah, and you don't have two decades to pursue the case all the way to the Supreme Court.

So you need to take all that excess capital, and figure out a productive way to invest it in what looks to the IRS like a legitimate business expense.

Examples might look like:

1) A backup tractor [in case your primary ride needs to go to the shop]. Or two or three backup tractors, all with similar parts to each other [all of which can serve as parts trucks].

2) All the mechanics' tools you could ever dream of owning; hydraulic lifts, blow torches, every wrench known to mankind, etc etc etc. [Except that you don't own them; your LLC/S-Corp owns them.]

2A) WARNING: If an S-Corporation provides any learning materials to someone doing business on behalf of the S-Corporation, then the IRS has ruled that providing those learning materials establishes an employer/employee relationship, and if your S-Corporation were, say, to pay for you to take diesel mechanics' courses at your local community college, then in the eyes of the IRS, that would create an employer/employee relationship, and you'd be screwed [you would have to pay full income tax]. So for education in the industry, you would need someone like your wife to pay cash for it [meaning you CANNOT use a check written on your S-Corp checking account to pay for it, unless you want to become an employee of your S-Corp, and lose all of your tax advantages].

2B) WARNING: NEVER MIX PERSONAL AND BUSINESS ACCOUNTS. Your wife never writes a check to your S-Corp, and your S-Corp never writes a check to your wife [unless you've taken her on as an employee].

3) Raw land zoned as commercial or mixed use; your LLC/S-Corp can purchase commercial real estate until it starts squirting right out of your ears.

3A) Old commercial structures; things like an old filling station which comes up on the market [although you'd need to make certain that the petroleum tanks beneath the filling station didn't have "issues" with the EPA].

Etc etc etc...

Let's say you have you $25,000 liquid capital at the end of the calendar year; and let's say you can maintain that rate of liquidity for five years straight.

YEAR 1: For $25,000, purchase an acre of land which is zoned commercial.

YEAR 2: For $25,000, grade the lot, and lay the piping [potable water (maybe even a well), gray/black water exhaust (into a sewer or septic tank), telecomm lines, etc].

YEAR 3: For $25,000, lay the foundation for a new building, atop all the buried stuff from the previous year.

YEAR 4: For $25,000, frame the building, to include roof and siding.

YEAR 5: For $25,000, install the windows & doors & electrical wiring & interior plumbing.

YEAR 6: For $25,000, commence interior modelling of the building.

YEAR 7: Pave a small parking lot, and get an occupancy permit.

All of those are perfectly legitimate business expenses, and all of them are fully tax deductible.

And at the end of six or seven years, you'd have a high quality commercially-zoned building which you use to run your own business, or you rent to other people to run their businesses; or you could sell out of the property completely, as a commercial real estate transaction, and start all over again looking for new commercial properties to invest in.

You've just gotta make sure that you never screw up and write a personal check for anything; all of your business purchases must be paid for with your business checks, and all of the titles for your real property must clearly indicate that your LLC/S-Corp owns the title to the real property.

If you adopt strategies like that, making prudent business investments in YOUR BUSINESS, then the IRS can't touch any of it.

Now if you decide to go the way of investing in commercial real estate, then the county will most definitely demand a property tax every year, but the county's property tax rate [maybe 1% or 2% total] won't amount to peanuts compared to the combination of Federal Income Tax plus State Income Tax [maybe 20% federal plus 7.5% State].

So if you're re-investing all of your surplus liquidity back into your LLC/S-Corp, you can get your taxes down as low as about 1%, versus something like the 27.5% you'd be losing if you screwed up the legalistics, and made it look like you were an employee of your LLC/S-Corp.

PS: Note that I am not advocating for any form of debt or loans or usury here.

I'm advocating for you to re-invest all of your money right back into your LLC/S-Corp, and grow that company in such a fashion that it does not appear to be making a profit, and effectively pays no taxes whatsoever.

It just keeps growing & growing & growing.

Of course, if you eventually decide to sell your company, then you would have to pay capital gains on the difference [between, say, the $0.00 value of your company when it was started in 2022, versus, say, the $500,000 value of your company when you sell it in 2037].

That, by the way, is why you always want to merge with another company, trading stock certificates with each other, so that no taxes need to be paid on capital gains.

PPS: ONE FINAL GREAT BIG CAVEAT

The above strategy works wonders in a growing economy with inflationary pressures coming from the Central Bank [because inflation artificially props up real estate prices].

HOWEVER, in a deflationary environment, you want to be invested NOT in real property, but rather in cash, because cash maintains its value during deflation, whereas Real Property tends to lose its value in a deflationary environment.

So if you believe that we're heading for serious deflation, then you'd want to grit your teeth, reveal some of that income to the IRS, and pay the dadgum taxes to the IRS, because if the deflation becomes too severe, then having some cash money in your hands [even if you had to give away a great big chunk of it to the IRS] is better than being 100% invested in real property which is plummeting in value [due to deflation].

So as a businessman, you've gotta keep an eagle eye on all the business & economic gossip, and make gut-wrenching decisions as to whether you're gonna bet on inflation triumphing, or on deflation triumphing, and you've gotta be nimble as hell, so you can switch back and forth, at the drop of a hat, between inflationary strategies versus deflationary strategies.

 

What in the holy he'll is this hogwash? Man you guys get it tough, in AUS we can pay ourselves whatever we want.

If you profit $300k and only want to pay yourself $20, the tax man don't give a crap.

 

You don't have an income tax there?

As mentioned above, it has more to do with the characteristics of the labor and amount of work committed to arrive at that profit.

If you drive 100 000 miles to arrive at that $300 000 profit, they will look at what you paid yourself for driving that 100 000 miles vs. industry standards.

So, if you paid yourself only 20 cents a mile, then withdrew additional money from your business account as "owner's draws" - which are taxed less than payroll - to make up for that insufficient pay, then that procedure may be put under question.

 

Im set up as a C corp and pay myself a weekly salary using intuit payroll. Easy to use and alleviates any risks for payroll tax error. Worth the expense in my opinion.

 

In terms of whether you want to move money OUT of your S-Corp [and into something else right now], and thereby incur a FICA/Medicare/Unemployment/Income-Tax penalty, this story today is interesting:

US Pending Home Sales Fall -36.7% YoY In October, MBA Purchase Applications Fall -31.22% YoY As Fed Tightens

US Pending Home Sales Fall -36.7% YoY In October, MBA Purchase Applications Fall -31.22% YoY As Fed Tightens


So at least in the residential housing sector, you're looking at significant price deflation.

Again, if your S-Corporation purchases property zoned commercial, then that's a perfectly legitimate business expense for your S-Corporation to be making.

However, I don't know the rules if your S-Corporation were to purchase property which was zoned residential.

That seems to me like it could be a big No-No, and would make the money in your S-Corporation look more like personal income to the IRS [rather than business income].

Again, in a DE-flationary environment, you want to be sitting on cash, prepared to pounce as close as possible to the absolute bottom of the crash, meaning that you don't want to be spending your cash when the market has made only about half of its collapse; you want to wait until the market hits rock bottom, and then you pounce with the cash you have in your S-Corporation.

But you have to have done your research beforehand, and know which precisely are the properties that are legitimate business purchases by your S-Corporation, versus which properties would look to the IRS as though they were "consumer" rather than business purchases.

So DO YOUR HOMEWORK DO YOUR HOMEWORK DO YOUR HOMEWORK.

And when the market hits rock bottom, and, say, that big mechanics' shop [or convenience store] at the heavily-travelled crossroads goes up for sale, zoned commercial, you're there to pounce on it.

That's how you keep the IRS from touching your cash; just do your homework and wait patiently for Rock Bottom, and purchase commercial.

--------------------

One other thought; if you get to the point in your life where you want to become a "Player", then you start making big campaign contributions to local politicians on the zoning board, and then you start getting leverage on them to change a property's zoning status from residential to commercial, which allows your S-Corporation to purchase it without worrying as much about what the IRS thinks.

Rich folk don't exactly get rich because they play by the rules.

Rich folk tend to get rich because they CHEAT.

 

Here's another deflation story which just hit the presses:

Pending home sales fall for fifth straight month

https://thehill.com/policy/finance/3756235-pending-home-sales-fall-for-fifth-straight-month/

Do your homework, hold onto the cash in your S-Corp, wait patiently for prices to hit rock bottom, then pounce.

 

It is sad, indeed, that rich folks, in this sub-era of civilizational evolution get rich not because of their genuine ideas that result in more efficient work and building a nation's wealth but because the're in a position to exercise their being smartass - on the verge of being a scoundrel skills that benefit nobody else but themselves. These are weeds who overgrow because they found efficient yet parasitic ways to suck on the Mother Earth vital salt that became scarce to others,

 

TallJoe: "These are weeds who overgrow because they found efficient yet parasitic ways to suck on the Mother Earth vital salt that became scarce to others"

Bro, you are my soul brother.

You are reading my mind.

We are the slaves of civilization-wrecking parasites.

My only point is that the longer we keep being the Mr Nice Guys Who Always Finish Last, the poorer we are, and the wealthier the parasites become.

 

Speaking of which, there is one last point I kept wanting to make, about LLCs & S-Corps, but I kept forgetting to post it here on Owner-Operators.

If you are still single - a childless bachelor - then a really good investment strategy is to NOT own your LLC/S-Corp per se, but, instead, to place all of the shares of your S-Corporation into a Trust, with the beneficiaries of the Trust being your biological children [who are, as of yet, maybe still not even born].

This strategy does two things:

1) If you're thinking about marrying a single mother with kids, and legally adopting those kids of hers, and if you realize that adopting a child will [??? in almost all states of the USA ???] give that child the very same inheritance rights that a biological child of yours would have had, so that, from a legal point of view of inheritance rights, the legally adopted children will get as large a piece of the inheritance pie as would your own biological chldren, and when you think about it that way, that you're throwing your heart & soul into creating a profitable LLC/S-Corp, but the beneficiaries of all your sweat-equity [your blood sweat & tears] will be ANOTHER MAN'S CHILDREN, then it will make you think long and hard about adoption in the first place.

[Personally, short of having completely defective testes, it's very difficult for me to imagine working my entire life to raise another man's children.]

2) Not owning the shares yourself [but rather putting those shares in a Trust] is an excellent way to shield yourself against a "Divorce Rape" by a scheming backstabbing THOT who tricks you into marrying her. Unless she produces live births of your children [as proved by DNA*** analysis], she gets NOTHING WHATSOEVER out of you when she files for divorce, because you own nothing; it's your biological heirs who own everything.

So either she hangs around for the long term, making babies with you, or else she blows her stack [as soon as she learns that you own NOTHING], and she'll file for annulment/divorce, and ghost on you, and you'll be rid of her sorry ####### posterior, and free to look for a trustworthy chick with an actual soul whom you can marry.

[And by the way, that Trust might have to witness two or three of those divorces before you finally stumble upon a trustworthy chick with an actual soul, but, by that point, you'll be an old pro at the game, and you'll just keep shrugging your shoulders as you work your way through all the THOTs until you finally find a keeper.]

And putting all the shares of your LLC/S-Corp in a Trust is one of the very best strategies you can make in anticipating the possibility of a future attempt at divorce-raping you.

===============

***It's possible that there are states, such as Kalifornia, where the courts might force you to treat "cuckold" children [the children your wife has because of an affair with another man] as though those "cuckhold" children [whom you didn't sire] are actually your own biological children.

And that's a strong argument for checking & double checking & triple checking the marriage & inheritance & family law in your state before signing the documents which create your Trust.

I would try to read as much for free on the internet as possible, and even purchase some books about it [and read the books], but if you pay for a lawyer's advice, make sure he's the meanest nastiest baddest-assed marriage/inheritance/family-court guy in the state, who also just happened to graduate #1 in his law school class at StateU.

Ten or fifteen years from now, when your LLC/S-Corp is worth $500,000 to $1,000,000, you don't wanna come to discover that some idiot who didn't know what he was doing had set up your trust all wrong, and now some dadgum THOT is able to steal at least half of that property from you.