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So, you’d put yourself on payroll for $60,000 and take $90,000 as distributions which are NOT subject to 15.3% self-employment taxes.

I’d highly recommend using them over Paychex or QuickBooks! Gusto Payroll Dashboard S-Corp Tax Exampleįor example, if you’re making $150,000 as a freelancer living in New York state, a “reasonable salary” might be $60,000. It’s so easy that sometimes I forget that I even have a payroll company. Clear email notifications and reminders.Easily access pay stubs and other important records.Easily pay domestic and foreign contractors.Give yourself bonuses and run one-off payrolls.But Gusto is truly amazing and makes payroll fun, easy to understand, and easy to manage.

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However, most payroll software is clunky, confusing, and hard to manage. Important: Having a payroll company and business checking account is mandatory for all S-Corps. There’s also a huge 20% tax benefit for S-Corps under the new Tax Cuts and Jobs Act of 2017 offering even more savings. In short, you’re a W-2 employee of your own company and you choose how much to pay yourself! That income is subject to all the normal taxes and withholdings as if you were working for any other company. Get a $100 Visa gift card after you run payroll! 💰 Sign up for Gusto Self-service, cloud-based payroll & benefits for freelancers running an S-Corp business. It’s as simple as providing a W-9 form with your businesses information on it rather than your personal information and sending an invoice with the business name on it.Īll your income will now be deposited into a business checking account and, using a Payroll company such as Gusto, you’ll pay yourself whatever is considered a “reasonable salary” for your profession. Instead of a client hiring you personally, they hire your business. Therefore, any income you earn gets passed to you through the business entity. How It WorksĪn S-Corporation is a completely separate business entity of which you are an employee and, in most cases, the president. The purpose of an S-Corp is to pay yourself what is considered a “reasonable salary” by the IRS (proportional to your total income) and to take the rest as distributions which are NOT subject to the 15.3% self-employment tax. S-Corp TaxesĪn S-Corp can offer a massive tax savings on your freelance income if you’re an above-average income earner for your geographic location. Then, at the end of the year, that client sends you a 1099-MISC form, which is simply a receipt acknowledging that their business is reporting the money they spent on your work to the IRS. If you’re running a freelance business correctly, you give each client (who’s paying you more than $600) a W-9 form with your social security number (SSN) at the start of a project. So if you earn $100,000, you’re only taking home about $60,000 after taking the standard $12,000 deduction for single taxpayers. That brings the total taxes you owe as a 1099 contract to roughly 45% of your gross income. When you’re a W-2 employee, your company subsidizes this cost for you, but when you’re self-employed, that tax burden falls on you. However, freelancers are also hit with a 15.3% self-employment tax, which includes 12.4% Social Security and 2.9% Medicare.

In most states, this typically works out to about 30% of your total gross income. You’ll have to pay federal income tax to the IRS as well as state taxes. 1099 Taxesġ099 contractors pay the highest taxes possible. Most freelancers aren’t familiar with S-Corps, so I’ll do my best to outline how each of these four business elements work as a 1099 contractor in contrast to an S-Corp in an effort to shed some light on this unfamiliar and complicated topic. That’s why after nearly 10 years of being a 1099 contractor, I decided to form an S-Corp called Matthew’s Design Co. The way clients perceived my business was hindering my future growth. Then, when I started turning down paid work for lack of availability, I found it difficult to grow my business by hiring subcontractors because clients were hiring me personally for my skills and experience. Each year was better than the last, but the more money I was making, the more I was paying in taxes.ĭuring that time, I had to deal with a few client situations that left me uncomfortably exposed from a legal perspective.

In 2015, I took my freelancing career full-time. Unfortunately, that also means you’re paying the most taxes possible, have no legal protection, and are perceived as an individual, not a business. If you’re a freelancer, you’re likely operating as a 1099 independent contractor.