Tax questions about owning a business

If you own a business and make say $25, 000 a month gross and you pay yourself salary out of that how is all that taxed. Do you get taxed for making that with the business and then taxed again for your salary?

 

It depends on which country you live and what type of business entity you have. In my country an Ltd pays tax for the money it makes as a business entity (called corporate tax). Well, the money is still on the company's bank account so how do you get it to yourself? You can pay yourself either salary or dividends. They are also taxed, so yes, you will be taxed two times so to speak. Salary can be taxed more heavier than dividends so sometimes it's better to just pay yourself dividends.

There are also other business entities than limited company. Like sole proprietorship. Their taxation is different from limited companies in a way that everything is taxed as personal income (salary). In general, if you don't make a lot of money with your business, sole proprietorship's taxation is better for you. That said, if you are making $25000 per month a limited company is definitely the way to go.

 

I assume you're in the US. From what I understand if you're self-employed you fall under the 1040 tax form. It doesn't matter if you pay yourself a salary out of your earnings. What matters is whether or not you're self-employed. At any rate, if you have a taxable income of $100,000 or more OR
you have self-employment income of $400 or more you are required to file the 1040 form.

 

it depends on how your business entity is set up. Are you a sole proprietor, C corp, S corp, etc etc??

 

Set up as a LLC but someone told me to file some form with the IRS to be treated like a S Corp. Not sure if that is the right thing to do.

I am in USA

 

You're best to speak with an accountant, this varies by country and even by state sometimes.

 

A single member LLC get treated differently than a multi member LLC FYI. if you reach the level of
$25,000 per month get an accountant involved. Don't forget about FICA taxes as well at 15.3%!!!
yikes!!!

 

All the income will be taxed, one way or another. If you are a single member LLC, the income all ends up on your own 1040 unless you elect to have the LLC taxed as a C corporation or an S corporation. If you take the advice to elect to have the LLC taxed as an S corp, some of the income is taxable to you as a salary and the rest is passed through to you as your share of S corp earnings. If you elect to have the LLC taxed as a regular C corporation, then you only pay tax on your salary but the corporation, after deducting your salary as an expense, is taxed on the rest of the income.