Hello Fellow Mustachians,
I recently was offered a contract position for work-from-home website management. I am trying to figure out what is the best way to lower my taxes and maximize my savings. I've read a few of the other threads about incorporating for contractors, but I feel like they are assuming a pretty high level of earnings. As I will be managing content on a website for one client, I don't think I need to incorporate for the protection of my assets. (I've also heard that it's easy enough to "pierce the corporate veil" unless one is very careful.)
Here's my situation. I will be making 67K for the year from this contract. I file taxes as joint-married and our combined gross income (not AGI, just adding our two salaries together) is around 137K. We both have Roth IRAs and my wife has a 401K.
So, is forming an S-Corporation worth it? Is an LLC that elects to file as an S-Corp any better? Or should I bother to incorporate at all, i.e. just be an independent contractor?
I'm not exactly sure how to calculate my savings and taxes with the different options. On a basic level, paying the self-employment tax (15.3%) on 67K works out to $10,251. But paying myself $35K in wages would reduce that to $5355. What I don't know is if that's the end of the story. How much will I be taxed on the $32K in dividends that I would also give myself? How much does it matter that I will be filing jointly with my wife? What about further reducing my taxable income by providing myself benefits? (And I'm not sure which benefits are allowable and most effective for reducing tax burden.) So, if someone could point me to a place with a calculator or a thorough guide for calculating the differences, I'd love to see it.
Thanks for your input!
- El TD