Earning 1099 income? Do this...

Welcome to the Storybook

Each week, I share… ✍️

• a definition 🤓

• a quick story 📖

• a mindset shift 🤯

• an opportunity list 💡

This is the most entrepreneurial focused and practical FLIGHT I’ve written, and it’s because I want to save you money.

As we approach the end of the year, I think it’s an important for my self-employed or business owner friends to understand how to set yourself up for 2025 from a payroll/tax strategy

We implemented this strategy once we became a profitable business in 2019 and it’s saved me a ton of money personally.

Let’s say you’re a realtor, doctor, insurance broker, Uber driver, or any other self-employed individual, perhaps even side hustle, earning a decent amount of consistent money that is not considered W2 income.

Or maybe you’re already an LLC small business owner with employees.

LLC business owners are paid and treated differently than regular W2 employees from a tax perspective.

All business profits are a pass-through to the owner and considered taxable income.

Even if you re-invested that money back into the business and didn’t take a dime out of the company, you’ll still be taxed on the personal level for any net profits at the end of the year for federal and state taxable income reporting.

The IRS also imposes something called Self-Employment Tax on all business profits, which means that LLC owners are hit with an additional 15.3% tax burden.

Ugh…that stinks!

Here’s some simple math to paint the picture…

Let’s say you made $100,000 in profit at the end of the year…

• $15,300 self-employment tax

• $25,000 Fed/State withholding tax (estimation)

• Total Tax Owed = $40,300

Oof… that’s a hit.

There is good news, however, and I am going to explain how you can save thousands by filing one simple form with the IRS to minimize your tax burden each year.

🤯 THE MINDSET SHIFT 🤯

Consult with your CPA and file 👉 Form 2553, Election by a Small Business Corporation with Uncle Sam to let them know you’d like to be taxed as an SCORP.

By making this simple tax election, you will save 15.3% on all your business profits.

Yep!

Gone… bye bye… see ya… vamanos… siyanara… 👋

As an SCORP, you are considered an Owner/Employee of your own business and receive a W2 from your LLC.

Your LLC will take a salary expense; a deduction, to pay yourself.

If you’re self employed and your income is still going to your personal checking account, the first thing you need to do is set up your LLC and business checking account for your 1099 income to be considered revenue.

Then you can also take other tax free deductions for reasonable business expenses to help minimize your tax burden and have reportable income for future things you may need to qualify for, like a business loan or a mortgage.

Being an SCORP will lower your profit on paper, because of your new salary expense, but once the IRS recognizes you as an SCORP, that pesky self-employment tax goes away completely.

You’ll now just pay the payroll tax that goes to Social Security and Medicare (FICA), which is the same 15.3% on your reasonable salary, which will be less than your full profits.

This tax is called FICA.

So it would look a little something like this…

LLC - Taxed as an SCORP

• $50k profit, $0 self-employment tax

• $50k salary, $7,650 FICA tax (SS/Med)

• $25,000 Fed/State withholding tax

• $182 W2 Unemployment tax

• Total Tax Owed = $32,832

TAX SAVINGS = $7,468 

That’s a nice little vacation or funds to reinvest back into your business or pay off some outstanding debt.

Either way, when you’re a profitable LLC owner…

…filing one simple form…

…will save you thousands of dollars.

💡 AN OPPORTUNITY LIST 💡

a short list of ideas, learnings, recommendations, or happenings for the week

1. I work with some really great CPAs, so if you are a new business owner starting to turn a profit or thinking about starting an LLC, it’s worth a conversation to see if this strategy makes sense for you. Reply to this email and I’ll connect you.

2. After you’ve made the SCorp tax election, 👉 Journey Payroll can help with processing your wages/taxes to properly report IRS payments/filings, along with issuing your W2.

As always, please reply to this email with your thoughts, questions, future topics you want to learn more about, or if I can be a resource for you in any way.

Opportunity is Everywhere!

Cheers, Steven

Watch Episode #79.5 of the SuccessFlow Podcast

This is a replay episode from Thanksgiving last year and such a great reminder for being thankful and grateful in a life that can be chaotic.