Long-time lurker here. (HI!)
I'm wondering if you smartypants can give some advice on making employer contributions to 401ks v. paying payroll taxes.
My husband and I own and do work through an S-corp. (I also have a full-time job with a separate employer.) I would like us to max out our 401k contributions for the year: $17,500 for me, $23,000 for him (>50). All good there.
Where I'm getting stuck, though, is setting our reasonable compensation to balance the ability to put away more money tax-deferred via an employer contribution (20%) v. paying less in payroll taxes on said reasonable compensation for the year.
We're not talking about huge amounts here: the business before expenses will probably make $65,000 by year's end. So the range of reasonable compensation for each of us is within about $5000 either way -- and therefore well within the "reasonable" part of "reasonable compensation" regardless.
But I would really like to maximize any advantages we may have (i.e., keep as much in our pockets as possible). I just can't seem to figure which is the better way to go:
a. pay each of us the higher-end salary, thereby increasing the amount of the employer contribution to be tax-deferred, but also raising the payroll tax hit, or
b. pay each of us the lower-end salary, thereby decreasing the amount of the employer contribution to be tax-deferred, but also lowering the payroll tax hit.
This gentlemen --
http://evergreensmallbusiness.com/pension-deductions-versus-payroll-taxes/ -- suggests the higher payroll hit just isn't worth it, but I'm not sure I agree w/ his numbers. I also admittedly got lost in his calculations about 3/4 through. I'd love to hear some Mustachians' opinions/experiences. For reference, we skirt back and forth over the 15%/25% fed tax bracket line, but post-retirement, we'll definitely be in the 15% end of the pool.
Thanks very much for your thoughts.