vania-janet/multiturn-rag-retrieval-data huggingface dataset:
In theory the integration of taxes make the tax implications of paying salary or dividends equal. This is what happens when you calculate the taxes using a generic tax calculator, however, the theory breaks down in certain cases. If you are earning less than $100k there is very little difference and paying out a salary is usually the better option. In a large stable company the most efficient option is almost always a mix of both. If you are earning more than $100k a year it depends on a number of factors: 1) Are your companies annual earnings over $500,000? In Canada, private companies that earn more than $500,000 annually are taxed at a higher rate than those earning less than $500,000. If the earnings are above $500,000 generally you should reduce the earning to under $500,000 by paying a salary. However, this depends on the province, the other income of the owners are and how much more than $500,000 your company earns. 2) Are you eligible for deductions or benefits only available on earned income? Earned income is income that you have worked for, which does not include dividends. RRSP contribution room, child care expense deductions, CPP, and many other benefits under the CRA rules are only available to people who have an earned income. It is worth taking advantage of these deductions when they are available.  3) Is your company eligible for any tax deductions? The same as with your personal tax deductions and your personal benefits of earning income, having a corporate income is also a benefit. There are a number of tax credits and tax deductions that corporations can take advantage of and when available these should be taken advantage of before paying everything out in salary. Once all these questions are answered the calculation is based on your marginal tax rate and the tax rate of the Corporation. One other reason to have at least a portion of you salary as a dividend is that if you incur capital loss in your corporation you can pass them to your personal taxes. If you were payed 100% in salary this does not work. Other strategies to be more tax efficient: Income splitting (Pay a salary/dividend to yourself, your wife, your children your parents, or anyone you support). Rolling-over property with taxable gains into your private corporation. Buying insurance policies that gives a return of premium or increase your Capital Dividend Account (CDA).
Are these calculations correct? These are approximate calculations and are with the assumption that entire corpus will be taxed. The assumption was valid as the wording in the budget speech was not very clear. Subsequently the finance ministry has clarified that only interest generated will be taxed and not the contribution. There are no new calculations done with this assumption. Edit: As per communication from finance ministry this proposal is on hold.
"People often have the wrong idea about how taxes apply to their money.  There's not really any such thing as ""pre-tax"" or ""post-tax"" income, only pre-tax and post-tax **uses** of your income.  This is somewhat hidden by the fact that we pay income tax based on our income for the year; but if you look a bit closer, you'll notice that come April 15th, (almost) every dollar you get to *subtract* from your gross income isn't defined by where it comes from, but rather, where it *went* (there are a few special cases there, like qualified dividends, that that's an entirely different issue).  Perhaps the most clear example of this is a traditional IRA that you self-fund from your savings account on April 14th, for the prior tax year - You're putting dollars you've already taken home, into a pre-tax account, *after* the end of the calendar tax-year; and yet it all works out exactly the same (tax-liability wise - There's certainly an opportunity cost there) as if you had contributed those dollars via a weekly payroll deduction.  So when you manually fund a Roth IRA, it has *no* effect on your tax liability (except insofar as you *don't* get to deduct it from your taxable income, which you wouldn't if you had left it in a savings account, etiher).  In the year you earned that money, you paid taxes on it; when you take it out, you won't."
I think this question is best answered by simply spending 40-60 minutes looking over the tax documents from last year and tracing thru the calculations.   As much as we might like to do so, we can't treat taxes like a black box. Tax law is much more complicated than it should be, but its much easier to understand taxes after you've filed them than before or during... at least you have solid numbers to look at.
"Your income and expenses for the business should be independent of HST. That is, if you charged somebody 100 + 13 HST, you have revenue of 100. You're going to send the 13 to the government later, it's not part of your revenue. If you go out and buy something for 10 + 1.30 HST, you record 10 as an expense. You're going to take the 1.3 off the 13 you would have sent the government, it's not part of your expenses. And so on.  I am not sure what you mean by ""HST compensation"" but if it came from the government, and it needs to be declared as income, there will be information to that end in the letter that comes with the cheque. (For example, if they pay you interest on your refund, the letter reminds you to include that money in next year's income.)"
"It's called an argument from the extreme. Although, I think North Korea is a not as good of an example. Perhaps a better argument would have been ""if you like taxes so much why don't you give all your money to the IRS?""  So far the only points I have gotten from you is taxes are bad, freedom is good. Did you want to speak about a specific point?"
The thing with your last option is that the cash-out mortgage is treated differently than purchase mortgage, with regards to taxes. Specifically, tax deduction is limited to $100K mortgage instead of $1M (or a bit higher even). Other than that - you've covered your options, and its up to you to decide what to do.
You cannot deduct. Even if you could, unless you also hold the mortgage, it's unlikely that you would have sufficient deductions to exceed the standard deduction for a married couple.
FICA/SE taxes are not 30%. They are at most ~15%, including the employer portion. Employer also pays FUTA tax, and has additional payroll expenses (like fees and worker compensation insurance). The employee's FICA portion is limited up to a certain level of earnings (110100 this year, IIRC). Above it you only pay medicare taxes, not social security. S-Corp earnings are not taxed at 15%, these are not dividends. They're taxed at your ordinary income rate. You don't pay SE taxes on it, that's the only difference. I hope you're talking about tax treatment decision, because there are entirely different factors to keep in mind when you're organizing a business and making a decision between being it a LLC or a corporation. I believe you should pay some money to get a real advice that would apply to you, from a EA/CPA who would be doing the number-crunching (hopefully correctly). I'm a tax practitioner, and this answer was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer.
Is that normal? Yes. It's in fact pretty low. Just the FICA taxes you pay are ~7.5%, so you're paying ~21% for State and Federal. Pretty reasonable, especially if you live in a high-tax state (which MA is ~5.3% on all income).
No, you cannot. The FICA taxes paid are not refunded if you're not reaching the benefits threshold. They're gone. That is why foreigners who are not tax residents (mainly students) are not required to pay them. If your home country has a social security reciprocity agreement with the US - you can have a credit in your home country.
mb's answer for FSA was dead on. You also mention child care - The child care credit comes with a phaseout based on income, the Dependent care account alows you to set aside up to $5K pretax money to covers these costs. It's pre-FICA and medicare as well, so the savings can be 33% pretty easily.
Employer match doesn't incur FICA tax (social security, medicare) for you at all - either current year or when you withdraw. All you have to pay is income tax when you withdraw after retirement age. (Disclaimer - I'm not tax professional but has done my research)
I said I knew about FEIE. So what happens when you want to open a private tax-deferred pension that is common in most industrialized countries? Now you have capital gains that are not taxed. Uh oh. Oh, you want to work for yourself, have fun paying US social security even though you may never actually receive any benefit and aren't providing anything to the US, oh and that income not being counted in the FEIE. Oh you made a mistake on reporting your retirement account, the US government is now authorized to penalize you 40% of the balance of your retirement savings. That's great that you found an organization that says IRS won't use it for now, but who knows how long that will last.  But things like retirement savings and working for yourself must only be for crazy rich people, right?
"There's one factor the previous posters apparently missed here: You say ""self-employment tax""--in other words, at least some of that $16k is from self employment.  In a normal employment situation the FICA tax is taken out of your paycheck, it's normally spot on and generally doesn't show up on your tax return. However, for the self-employed it's another matter.  You pay the whole 15.3% from the first dollar and this does show up on your tax return.  If it's all self employment money you would have about $2.5k in tax from this."
"I have a couple other important considerations regarding external HSA accounts vs employer sponsored HSA accounts. Depending on your personal financial situation and goals; some people like to use HSA accounts as an extra retirement account (since the money can be withdrawn penalty free in retirement for non-medical expenses, and completely tax & penalty free at any time for medical expenses). If your intended use for the HSA account is an investment vehicle for retirement, then you may find more use/benefit out of an external provider that may provide more or better investment options than your employers HSA investment options. There can be a lot of additional value in those extra investment options over greater periods of time. Another VERY important consideration for FICA taxes (FICA includes Social Security & Medicare) that I don't believe was mentioned before - for those earners who are under the maximum social security wage limit, you are paying 6.2% of each paycheck into social security taxes. As others have mentioned you can ""save"" this tax through your employer’s plan if you set up the account to be funded pre-tax from your paychecks. However, in doing so, you are lowering your overall contributions into social security, which may lower your social security benefits in your retirement years! If this is ultimately going to lower your SSA benefits in retirement then that is a big future cost that may steer you against the pre-tax employer contributions. Think of social security as part of your retirement plan, not as a tax but instead as an additional check you put away for yourself for retirement every month. Of course, this is only an important consideration if SSA is still going to be around when you retire, but let's assume that it will be. This is not an issue for higher earners, earning well above the max SSA taxable wages. There is no wage limit on the 1.45% Medicare tax withholding's, and there is certainly no harm in saving Medicare taxes because it will not affect future Medicare benefits. So for taxpayers earning well over the max SSA wages, they will just save the 1.45% Medicare taxes without affecting their SSA contributions and resulting retirement benefits. So again, it all comes down to personal situations. Depending on your earnings and goals, employer plan may or may not be the way to go.
401k contributions are exempt from employee and employer FICA withholding.  The employer withholding is approximately 7% of the gross.  The closer the employer match ratio is to 7%, the closer it is to paying for itself.  Example: Assuming an employee is match-maximizing and in very round numbers grosses 100,000 per year.  A 50% match schedule is about $350 cheaper per employee than a 100% match schedule: Default non participant: The employee will see about 7000 deducted for FICA, and the employer will pay 7000 to FICA if they don't participate.   First case: the match is 100%, 1-for-1 to a 5% cap, the employee will deduct 5000, and have 6650 withheld for FICA.  The employer will pay 6650 to FICA.  The total employer cost of withholding and match is 11,650.   Second case: If the match is 50%, 1-for-2 to a 5% cap, the employee will deduct 10000, and have 6300 withheld for FICA.  The employer will pay 6300 to FICA.  The total employer cost of withholding and match is 11,300.
Why should capital gains be taxed at a lower rate than labor? It is because the tax code is really a philosophical tool (while also raising the revenues required to fund the government).  I get to vote for federal, state and local representatives. The constitution is a Federal system. That should be sufficient reason for 100% of the conservative movement -- Trumpists exist in a separate category, but their share of the electorate dwindles with every tweet.
Welcome to the real world. BTW, you have far too rosy a view of this if you think you're only paying 28.5% of your income in taxes. Remember that your employer theoretically pays half your FICA tax. But as far as they're concerned, that's part of the cost of having you as an employee. If FICA was abolished, supply and demand would quickly push salaries up by an amount equal to the FICA tax. So add another 7.65% to your taxes. Plus your employer has to pay unemployment tax (federal unemployment tax is $420 per employee per year, states vary) and workman's compensation tax (no idea how much that is) for the privilege of having you as an employee. You likely pay sales taxes on most everything you buy. I believe sales tax in Massachusetts is 6.25%. Assuming you pay that on only half of what you buy, add another 3% or so. Do you work for a corporation? Between when they sell the fruits of your labor and when they pay you, they have to pay corporate income tax. There are a lot of deductions so that gets complicated, but figure another few percent. Do you drive a car? You're paying gas tax -- 41.9 cents per gallon in MA. Do you smoke or drink alcohol? Extra taxes on those. Travel by plane or stay in a hotel? More special taxes. When you get around to buying a house, you'll pay property taxes on it every year, year after year. For me in Michigan that's another 3% of my income. I understand it's a lot more in Massachusetts. Etc, many other smaller taxes that add up.
"Again, you're welcome. It's also important to note (it really cannot be overemphasized) is that the taxes that were increased were/are virtually all the REGRESSIVE ones. The rate of FICA taxation for example on rents, interest, and other ""capital gains"" (i.e. non-payroll income) -- were initially 0%, then later became 0%, and currently are 0%. Meanwhile the FICA rate on average &amp; median payroll (wages/salaries of ""workers"" and ""mid-level managers"", etc) increased from 1% to 15% -- that's a 15x increase, or put another way, it is an increase of 1,500% during less than a single working career (the cost of absolutely NOTHING ELSE in the history of our society increased at anything like that rate; not even education and health care costs, nor even ""housing"" at the peak of the bubble -- and in actuality, just about everything else {including the notorious ""gasoline"" sold by those ""evil"" petroleum companies} actually DECREASED during the same time frame). And then, during virtually the SAME time period, those other taxes increased in a similar (if less egregious) fashion. For example in my Midwestern state, there was no sales tax at all circa 1950. A bit over a decade later, when it was first instituted it was initially set at 3%, but applied only to a select category of goods; subsequently the rate was increased (to 4%, then 5%, then with the addition of various county and municipal ""sales taxes"" to 6% and higher), and more critically, the goods and services that are subject to the tax has increased as well (many of them already with ""hidden/buried"" excise taxes -- so a large portion of the sales tax is actually a ""tax on a tax"").
"Am I on crack, or do the perceived tax savings via S-Corp distributions really not matter at a certain level of business income? You're not on crack. Generally, if all the income is generated by your own personal services - this is the outcome. The benefit of S-Corp is when you have employees who generate your income, and you distribute to yourself profits that come out of other's personal services. In this case your distributions are exempt from FICA since it is not in fact a self-employment income. You'd still have to pay yourself a reasonable salary for your position (as a manager/officer), but it wouldn't have to cover all of the available profits. So if the IRS takes a position against you it would be that your salary should be to include the whole profits, since it is the compensation to you for the personal services that produced the income to the corporation (you). In many cases they might agree that a salary at the SS maximum limit would be reasonable - but that's only a speculation of mine. In that case you might gain some portion of the medicare tax (with the recent law changes at the levels you're talking about you'll pay some medicare anyway). There are a lot of accountants who take more aggressive position saying that not all of the distributions are liable for SE taxes, even if you're the sole employee of the corporation. These cases often end up in the Tax Court, and whatever the outcome, your legal fees become higher than the FICA savings. What is probably missing in your picture is the SS limit of (currently $112K) above which you don't pay social security tax, so whether you get it as a salary or as a distribution - that limit is the same. That is why you don't see a significant difference. I know there are a lot of accountants who'd disagree, but I would argue that for a sole employee of your company, S-Corp doesn't provide significant benefits over the disregarded LLC taxation, but has some additional overhead that adds to your expenses. Here's a link to a lawyer's blog where he suggests (and says many accountants follow) 60/40 division between salary and distributions.
"If you have a CPA working for you already - this is a question you should be asking that CPA. Generally, NOL only affects the tax stemming from the Internal Revenue Code (Title 26 Subtitle A of the US Code). Social Security and Medicare, while based on income, are not ""income tax"", these are different taxes stemming from different laws. Social Security and Medicare withheld from your salary are FICA taxes (Title 26 Subtitle C of the US Code). They're deducted at source and not on your tax return, so whatever changes you have in your taxable income on the tax return - FICA taxes are not affected by it. Self Employment tax (Schedule SE) on your Schedule C earnings in the carry-back years will also not be affected, despite being defined in the IRC, because the basis of the tax is the self-employment income while the carryback reduces the AGI."
One snag in your plan is that you alone can't undo your HSA contributions because you would also owe FICA taxes on that amount, and those need to be paid by both you and your employer. The only way for that to happen is for your employer to undo your HSA contributions from their point of view so those wages can be entirely taxed with both FICA and regular withholding. How that is accomplished will probably be up to them. It could mean you pulling the money out of the HSA account, and then either giving it back to your employer so they can re-allocate it with a new check, or, if you have enough pay due between now and the end of the year you could keep the money and they can reduce your next paycheck(s) by the total additional taxes due. Note that you should prefer the latter if possible, since this way you would get to keep the $1000 you shouldn't have gotten in the first place. Also, note that when you withdraw the money from your HSA account you need to inform your bank that you are undoing the contributions rather than taking distributions (and likely fill out a form). If you don't inform them they will improperly report to the IRS that you had contributions and an equal amount of distributions, which could muddy the waters with also having an FSA.
At least with US tax law where you only pay taxes at the higher rate for the income above the minimum for that tax bracket, you will always wind up ahead taking the raise if you are simply concerned with after tax (FICA) income.  For example, assume you were making $8,350 (the top end of the 10% bracket in the US), and got a $100 raise, you would be taxed roughly as follows: After Tax Income Before Raise: $8,350 x (100% - 10%) After Tax Income After Raise: $8,350 x (100%-10%) +  $100 x (100%-15%) You can easily see that the second number is always higher than the first as long as the raise is a positive amount (obviously).
I fell into a similar situation as you.  I spent a lot of time trying to understand this, and the instructions leave a lot to be desired.  What follows is my ultimate decisions, and my rationale.  My taxes have already been filed, so I will let you know if I get audited! 1.)  So in cases like this I try to understand the intent.  In this case section III is trying to understand if pre-tax money was added to your HSA that you were not entitled too.  As you describe, this does not apply to you.  I would think you should be ok not including section III (I didn't.) HOWEVER, I am not a tax-lawyer or even a lawyer!   2.) I do not believe these are medical distributions From the 8889 doc....   Qualified HSA distribution.   This is a distribution from a health flexible spending arrangement (FSA) or health reimbursement arrangement (HRA) that is contributed by your employer directly to your HSA. This is a one-time distribution from any of these arrangements. The distribution is treated as a rollover contribution to the HSA and is subject to the testing period rules shown below. See Pub. 969 for more information.   So I don't think you have anything to report here.   3.) As you have no excess this line can just be zero.   4.) From the 8889 doc This is a distribution from your traditional IRA or Roth IRA to your HSA in a direct trustee-to-trustee transfer.   Again, I don't think this applies to you so you can enter zero. 5.) This one is the easiest.  You can always get this money tax free if you use it for qualified medical expenses. From the 8889   Distributions from an HSA used exclusively to pay qualified medical expenses of the account beneficiary, spouse, or dependents are excludable from gross income. (See the line 15 instructions for information on medical expenses of dependents not claimed on your return.) You can receive distributions from an HSA even if you are not currently eligible to have contributions made to the HSA. However, any part of a distribution not used to pay qualified medical expenses is includible in gross income and is subject to an additional 20% tax unless an exception applies.   I hope this helps!