withheld taxes

[hawkerjet]

This post was moved to the non aviation chat forum when it has everything to do with corporate aviation.
I am asking the corporate pilots that have formed a corporation, or LLC to receive their paychecks. Not just a 1099. i am interested in tax savings.
While this primarily is for the contract pilots, i would like to hear from anyone in the know
Thanx in advance

 

[xdrvr]

Forming an individual LLC won't give you a tax break. You'll still get a 1099 at the end of the year and it gets reported on Schedule C whether you are an individual or an LLC individual. Your best bet for tax breaks is in your write offs. Any out of pocket expenses required to do what you're doing... uniform dry cleaning, business cards, meals away from home not reimbursed for (typically meals on the road are covered, but if you grab something to eat at the airport and pay for it yourself you can write that off). Hope this helps

 

[hawkerjet]

I am in being told that if i incorporate, to incorporate as an S Corp. This allows for single taxation and you do as you said, find all the write offs you can.

 

[pilotyip]

Sniff Test

To pass the Corp sniff test and be clean in going the 1099 route, you must not receive any benefits from the contract employer except pre arranged pay for a particular flight. You must be able to say no to any requested contract work. If it is with a single company it gets even harder to pass the sniff test. I run my airplane through a sub chap S Corp, but I rent it other pilots and provide flight instruction. The sub Chap S Corp shelters me from the outside income because I can match business expenses against airplane revenue to break even each year. If you contract with more than one company it should be easy to set up and could give you some benefits.

 

[hawkerjet]

Thanx

 

[xdrvr]

Technically what you're saying is correct.. an S corp does provide single taxation, it eliminates double taxation... but you wouldn't be double taxed if you included this on your individual return.

S Corp is known for payroll tax breaks. All of the previous items stated in this thread can be accomplished on a Schedule C, offsetting income with expenses. The biggest diff on that specific is the individual Schedule C is currently limited at $3k LOSS for the year... meaning if you made 20k your expenses would cap out at 23k then you could carry over remaining losses to the next tax year. I wouldn't say that S corp would hurt for what you're asking but the same thing can be accomplished without forming an S corp. with an S corp you pay social security and medicare tax which is equivalent to the self employment tax that you pay for an individual return, so that's a wash. The S corp has a different filing deadline and it's a separate return... to me it's more of a pain because I can accomplish the same thing without it...assuming this is for contract pay i.e. you don't have any employees.

It's advertised that S corp "profits" aren't taxed by the fed govt which CAN be true but your "income" is still taxable on your personal return ...so you're back to square one. This can get as complicated as we drag it out to be and I'm glad it works for pilotyip but I have compared the two and it works the same without one for me. An S corp eliminates double taxation. Example: CORP A makes $80k for the year, without S corp they pay taxes on the full 80k (this is where the double taxation comes in to play) then... you subtract employee expenses, as a employee of CORP A you would pay personal taxes on whatever you rcvd as income.

With an S corp, CORP A pays taxes AFTER employee expenses and then you would pay your personal tax for income received as an employee... either way still taxable on personal return.... ya I know long winded and clear as mudd, but hope this helps

 

[pilotyip]

Sub S

xdrvr, with a sub "S" you take a lot more expenses without drawing the exposure of large deductions on a sched C. However, I have also been told you have to show a profit every few years.

 

[dhc8fo]

you can also pay yourself dividends that are't taxed (self-employment taxes, not income tax..can't avoid that one). as long as the dividends are REASONABLE and your corp is also paying you, it lessens your self-employment tax burden whereas you cannot do that with a schedule C. all the profits are income and you pay the 15 1/2% (or whatever it works out to) on the whole amount minus expenses. dividends would be considered an expense to your corp.

 

[xdrvr]

Ya, not arguing the point with you, but how much are we really talking about here... for contract flying if it's more than $20k he's doing good ... then you gotta look at rather that puts you in another tax bracket and if not how much are you really saving with an S Corp for the hassle. As long as you have receipts proper documentation you shouldn't be reluctant about write offs... either return is subject to audit... also rather than nickel and diming yourself for small write offs, if you're really looking for the modern tax shelter, buy another house... a 2nd house has the same mortgage interest write off bennies as your primary .. just my 2cents

 

[hawkerjet]

I appreciate all the input here, that's the feedback i was interested in generating before i pay money to a tax accountant. what i was thinking of doing was to form a nevada S corp and base it in California, my home state, and pay the $800 fee to the state yearly plus taxes. I could give myself a salary, say $50,000 and the rest I would try to write off as much as possible. The extra work i am doing more than satisfies the amount i would have been paying. i am told that after the initial headache of setting up the corp. i could expect about an hour a day just on keeping it up to date and not out of control.
This would be just me, i'm not hiring anyone, and i can do several flights a month for other companies as a contract pilot to satisfy the sniff test. i can also turn down work and have a contract pilot do a flight or two for me, also satisfying the sniff test.
Thanks again.