FICA Tax Planning: Is it right for my business? Colorado Tax Attorney Explains
What is FICA tax planning?
What is FICA tax planning? What we’re talking about when we say FICA tax planning is payroll tax planning and S corporation tax planning. Basically, if you can switch your business from an LLC or sole proprietorship to being taxed as an S corporation, you can switch yourself to being paid as an employee. As an employee you have to pay yourself reasonable compensation, but you get to name your own price on the 15.3% payroll tax. For example, with $100,000 of income, if you take a reasonable income of $50,000 as a W2 employee, of your $100,000 income you only pay the 15.3% tax on that $50,000. On the other $50,000 you would still have to pay income taxes but not payroll taxes. You end up saving around $7,000 – $8,000 per year on your income just from switching the way you do your business.