MicrostockGroup

I'm so excited!  Just received my articles of incorporation and federal Tax ID today. 

After getting killed by taxes on my 2008 return my tax pro suggested becoming an S corp.  Apparently you can pay yourself a salary and anything beyond that is not subject to social security tax.  You still have to pay income taxes, but since self-employment social security tax is 15% of income it looks like the savings will be substantial.

Hooray!

Since I had to use a credit card check to pay the outstanding balance to the IRS on 2008 taxes I am really eager for tax relief this year.

Presumably so.  I have to get with the accountant to find out if I have to withhold from each paycheck or can tally it all up at the end of the year. 

We also got killed on 2008 taxes, to the tune of $10,000 combined owed federal and state. Super huge *gulp* ...

Also looking into forming an S corp. Several people advised me to do it a few years back and dummy me didn't listen. I'm listening now.  

I wish !

I went through a site called floridaincorporationservice.com.  They were cheaper than legalzoom.com.  I don't know if they have branches for other states but they probably do.  And if not, legalzoom definitely does.

Perseus, what you are saying about the Canadian corporation sounds very similar to what I have been told about an S corp.  That is why I won't be subject to the Social Security taxes on the income, as it is considered investment income.  I will still have to pay the income taxes at my and my husband's personal rate, but saving on the SS tax is going to help out so much. 

Not being an accountant I am a bit fuzzy on the details but I have talked to several tax pros and they seem to agree this is the way to go. 

I figured I wasn't the only one in this boat.  The good news:  lots of us are earning money in microstock.  The bad news: wow those taxes come at you out of left field!!

You did explain well.  Thanks so much.  That is definitely an added bonus. 

We aren't in the category of having big assets at the moment, but who knows about the future.  Maybe stock will make us rich one day!! 

Please keep us updated on how things go.  I'm curious if you have to put yourself on payroll, if you will incure payroll taxes and so on.

Since you seem to know what you are talking about Perseus, here is another question.

How does being incorporated save on taxes?

If corporate tax is 15% and personal tax is 30%, then you save 15% tax on all the money earned that you are able to just keep in the corporation.  BUT, you still have to pay personal tax on that money when you finally pay it out to yourself.  So perhaps the savings are because you are in a lower tax bracket. 

But here is the problem.  Usually this works and you won't be taxing yourself twice because you can write off the 'drawings' as an expense, but if you are old and are the business is not generating much, or any income any longer, then writing something off as an expense doesn't have any positive effect, and the income you take out then will be taxed once when it came into the business (say 10 years ago) and now when you are withdrawing it.

Here's what I remember from my days as an independent consultant when I had an S corp.  If this is your main source of income you will need to pay yourself enough salary to make the IRS think you really are taking a salary from the company. Both you(as an employee) and the S corp will have to pay all the normal payroll taxes on this salary. You can take the rest of the money out as dividends. The only taxes you pay on that money is the same amount you pay on your other investment income. Since its investment income, you don't pay all the payroll taxes which is where your tax savings come from.

I am sure somewhere on the www there are already stockphotographers in your country who is already doing this. I suggest you confer with them. It does help to have a consultant who specializes in that field, as it is having an Entertainment Lawyer represent you, if you are a director ,etc.
Generalists are not as informed as Specialist, so it would be to your advantage to talk to some of the more established people to see what they do in similar situation as you.

Very interesting thread. I now pay 40% US taxes on my stocking income. After April 15 my accountant reminded me, "Whatever you buy for the business you are getting it at 40% discount."

40% tax is way too high, it makes me sick. So I am looking for ways to cut it down.

I was president of a small subchapter S corp (about 30 employees) for many years. And I started another one from scratch for myself once, mostly for legal protection. As Perseus correctly said, "Traditionally, incorporation was advised to protect your liability as a professional, since you become a separate entity from the corporation." So incorporating does offer that benefit, it protects you somewhat from being sued personally.

But to have an S corp, as I recall, you have to have shareholders and issue stock, and you have to have officers, and meetings (at least on paper) and all kinds of crap.

Ultimately a corporation is just another way for gov to tax you. And raising corporate taxes is something which is currently being proposed, it will be a popular idea in the current political climate.

I hope this thread grows with the experiences and thoughts of a lot of people on this topic.

And don't forget Medicare and probably state unemployment insurance. 

I will ask the accountant when I meet with her tomorrow, but I think I would rather play it safe and draw a salary.