S-corp - dividend taxes ?

[Sean H.]

What taxes are dividends subject to (not talking about wages i pay myself)?

I believe FICA is exempt? Is it just the dividend tax rate of 0/15/20%, or there any additional taxes this money is taxed?

For state, is it just the state income tax or is there a different rate as well?

[Ashish Acharya]

Originally posted by @Sean H.:

What taxes are dividends subject to (not talking about wages i pay myself)?

I believe FICA is exempt? Is it just the dividend tax rate of 0/15/20%, or there any additional taxes this money is taxed?

For state, is it just the state income tax or is there a different rate as well?

There is no dividend from S-corp. It's called distribution. Distribution is not taxed if you have a stock basis. 

You might be asking about the net income  (after you pay yourself). It is taxed at a normal ordinary income tax rate. You pay taxes on the net income, not the distribution. 

With the new tax law, net income will be taxed an extra 3.8%. This is very new and we all are trying to digest it. 

[Sean H.]

Originally posted by @Ashish Acharya:

Originally posted by @Sean H.:

What taxes are dividends subject to (not talking about wages i pay myself)?

I believe FICA is exempt? Is it just the dividend tax rate of 0/15/20%, or there any additional taxes this money is taxed?

For state, is it just the state income tax or is there a different rate as well?

There is no dividend from S-corp. It's called distribution. Distribution is not taxed if you have a stock basis. 

You might be asking about the net income  (after you pay yourself). It is taxed at a normal ordinary income tax rate. You pay taxes on the net income, not the distribution. 

With the new tax law, net income will be taxed an extra 3.8%. This is very new and we all are trying to digest it. 

So, youre saying net income is total income minus wages? 

[David M.]

@Sean H.

The way I think of S Corps is that since they are quasi-corps, instead of a "dividend" they are called "distributions."  So, first you have to take the mandated suitable salary which is subject to all taxes.  Then, this distribution comes along that is taxed like a dividend in so much there isn't FICA applied, but still like ordinary income tax rates.

So, take the total income of the S Corp less any expenses/deductions (which would include your salary(ies)) and that is what is remaining to pass through to you.  As for any new tax laws, I have no idea...

Hope this helps.

[Sean H.]

Im already educated on the proper ratio of wages to be taken out per my total income. Im just trying to figure out if those distributions are taxed in the standard federal progressive tax bracket (up to 37%) or the distribution tax bracket which seems to be similar to the long term cap. gains rates. 

[David M.]

@Sean H.

Aside from any new tax laws, the distributions are taxed at your ordinary rate.  Or put it the other way, the S Corp's primary advantage is not having to pay the the Self Employment taxes after the required salary.

Good luck.

[Sean H.]

ok, thanks!

[Chelsea Monk]

There are 3 types of income you pay income taxes on in your S Corp.

1. Wages you pay yourself via W-2. You pay employment taxes and income taxes, just like if you were working for someone else, and your Corp pays the employer taxes.

2. Net profit, regardless of how much you took in distributions. If the profit is there, you pay tax on it.

3. Capital gains on excess distributions. So let's say that you started your business with $1k from your pocket and a $50k loan. You profit $10k for the year. That gives you $11k tentative basis. Then you see you took distributions of $40k, which was possible due to the extra cash "laying around" thanks to the loan. You now owe capital gains tax on $29k, which is the amount of money you took out that was above and beyond your "skin in the game."

This is a very high level overview, but I hope you find it helpful. Its not accurate to say you pay taxes on distributions. You pay taxes on income and *sometimes* on distributions if they're in excess if basis.

[David M.]

@Chelsea Monk

How is #2, the net profit, income categorized?  Ordinary income but no self employment tax?

[Chelsea Monk]

Yes, that's exactly it. :)

[Basit Siddiqi]

S-corps are pass-through entities.

You earn and report income as the S-corp earns it.

S-Corp do not have dividends, they have distributions.

Distributions have to be tracked for basis purposes.

Best of luck