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Discussion Starter #1
I've been doing contract work since I got out of school (read: since I've made more than $10K/year) & have always had a really good tax guy to get my taxes down at the end of the year - so I've never had a really huge tax bill before, even being self-employed

well.... My company just setup payroll through ADP - 39% of my first check went to taxes! WTF?! That's more than when I was self employed & payed self employment tax in addition to normal tax!

FFS!

I wonder if this has anything to do with status in the company. If I'm part owner, do I pay some extra self employment type of tax?

Man, you'd think I'd already know these things....

-eek-
 

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You might want to check and make sure they don't have unemployment or workman's comp coverage for you. If it's a privately held corporation, and you're a majority shareholder, I don't think those are required for you.
 

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How many exemptions have you set up?

If you are an owner, you might consider taking a smaller payroll salary and take an additional 'distribution'. This distribution gets accounted for at the end of the year and is counted as compensation. You will have to pay taxes on all of it. This way you can keep the money and pay IRS when taxes are due.

Your current set-up will likely result in a big tax refund for you - but then the gov gets to keep your $ for most of the year.

Get yourself a good tax accountant. She/he will suggest some good strategies. Look for one who is an Enrolled Agent.

Good luck.
 

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shinoo said:
How many exemptions have you set up?
exemptions? uhhh... I don't know. I claimed 0, is that what you mean (I thought that was dependants)? Can you claim exemptions before they take out taxes?

You know - we're super ignorant to this whole payroll/tax thing - that's why we hired a payroll company.

I think I'll make a few phone calls. ;)
 

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BrianK said:
well.... My company just setup payroll through ADP - 39% of my first check went to taxes! WTF?! That's more than when I was self employed & payed self employment tax in addition to normal tax!
39% sounds about right if you don't mess with your W2 to account for writeoffs like mortgage interest and if you're making decent money.
 

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you should claim at least 2 and make it up at the end of the year. It is better for you to hold your money than have the government hold it for you.
 

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BrianK said:
exemptions? uhhh... I don't know. I claimed 0, is that what you mean (I thought that was dependants)? Can you claim exemptions before they take out taxes?
You can claim up to 10 without any 'justification'. Depends on if you have a lot of deductions (like state tax from high salary or you have a mortgage). I am married with 2 kids and a mortgage in LA. I claim 10 exemptions and still get a hefty return each year.
 

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Not a corporation then?

If not, I recommend you consider it.
 

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0 is MAX withholdings - they withhold at the maximum fed tax rate (or something silly like that). You get 1 "dependant" automaticaly at tax time - that's you.

Depending on the structure of the business you're in (C-corp, LLC, etc) your distributions will be at either your income tax rate or capital gains rate. Much better to get capital gains rate. Knowing your exit strategy (or continued operations) is important.

Your accountant / lawyer should have gone over these issues when you went through your business formation. If they didn't boot them, they just cost you a lot of money.

You can recover by re-forming your company. There are many strategies for this but it will end up costing you $$$ & its a big annoyance.
 

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del105 said:
you should claim at least 2 and make it up at the end of the year. It is better for you to hold your money than have the government hold it for you.
Not really - if you underpay your taxes by a small amount (is it $1k?), you must pay a penalty.
 

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atyclb said:
incorrect (generally speaking)
Ok, just how 'generally' are you speaking, then? If you assume your income is the same as the previous year, and you alter your W2 so you do not have enough money withheld, how does one get away without paying a penalty? I'm self-employed, and I thought I had researched this well enough (yes, I know about the 110% method).
 

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I would be curious too, I have paid that penalty for not having paid enough in for a quarter, and being below last year's taxes.
 

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atyclb,

Not sure what you're getting at, but if your 1040-ES payments don't add up to at least 90% of your total tax liability or 100% of previous year's tax liability, you'll be penalized. At least, that's how I read it.

Oops, for some reason I forgot what the whole discussion was.... Yes, you're right! :) I'm an idiot. Nevermind me!
 

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Thanks for the link. Ok, so you can underpay by more than I thought, but it's still so little (10%, assuming income is the same) that you better be pretty confident in your math before making changes to your W-2.
 

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Thats why I said claim 2 there is no way it is going to amount to be more than 10% off. Unless you have absolutely nothing to write off at the end of the year.
 
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