Tax Reduction Podcast

Episode 37. Owner Payroll Tax

• Boris Musheyev • Episode 37

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If you’re a small business owner with an S Corporation, the way you pay yourself can make or break your tax bill. Most business owners overpay payroll taxes because no one ever showed them the right tax strategy. They treat owner payroll like a checkbox which is a big mistake. Your payroll is a tax planning weapon if you know how to use it.

In this podcast, I’m breaking down exactly how to pay yourself as a business owner, how payroll taxes really work inside an S Corporation, and what you need to do right now to lower your self-employment tax legally. These tax strategies are what your CPA probably isn’t telling you.

We’ll cover payroll tax strategy, how to determine a reasonable salary, and how to avoid red flags with the IRS. If you're married and running a business, there are major tax benefits to putting your spouse on payroll. Get this wrong, and you’re either wasting money or triggering problems with IRS payroll compliance. Get it right, and you unlock additional tax deductions, retirement contributions, and even better healthcare options.

And if you’re listening to this before year-end, I’ll walk you through key tax planning tips you need to make before December 31st. Because once the calendar flips, your options disappear and your tax bill is locked in. This is the payroll tax strategy every small business owner needs to understand. If you're serious about reducing payroll tax, increasing your tax deductions, and staying IRS-compliant,  start by listening to this podcast.

I've put together this FREE resource for you:

7 Write-Offs Every S-Corporation Business Owner MUST Know
🆓 Download FREE PDF here: https://7taxwriteoffs.com/?el=podcast&htrafficsource=buzzsprout

Ready to start saving money on your taxes?
☎️ Schedule your FREE Tax Advisory Session: https://taxplanningcall.com/?el=podcast&htrafficsource=buzzsprout

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🤑 If you want a better payroll app to process and file payroll for your business. Check out Gusto, so easy to use and you get a $100 gift card for signing up using this link: https://gusto.com/r/boris466

P.S. When you sign up for Gusto, you get a $100 Visa gift card

*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this ...

Speaker 1:

Hey, if you are a business owner and you run payroll for yourself or for your employees, then this is for you. Okay, now I'm going to break down this into four sections to help you understand how payroll taxes work in your business and how you can actually utilize some of the strategies to reduce down your payroll taxes. So, like I said, I want to break down this into four sections. First thing I want to talk about is how payroll taxes work. It's really important for you to understand this. If you already know how payroll taxes work, just skip through it. But payroll tax is really, really important. That's the first thing.

Speaker 1:

The second thing I want to talk to you about are owner payroll taxes. Now that we understand payroll taxes, what about payroll taxes for yourself as an owner, on your paycheck and some of the strategies that you can use to lower that? The third thing spouse. If you are employing your spouse in your business, how much payroll tax are you paying for them and how can we lower that or really eliminate that? So that's what we're going to talk about as well, and some year-end cool tax strategies, tax tips, whatever you want to call it. We're definitely going to cover that.

Speaker 2:

Welcome to the Tax Reduction Podcast for money-making entrepreneurs with Boris Mushaev. Boris has helped entrepreneurs across the United States collectively save millions of dollars in taxes with the power of tax planning and advisory. The only way you, the business owner, can save money on taxes is by using proactive tax strategies, and this podcast is all about saving you money on taxes. Boris will share with you in-depth and easy-to-understand tax reduction strategies that you can implement in your business within 30 days or less. Let's jump into today's episode.

Speaker 1:

Now let's cover the first thing on our list, which are payroll taxes, and how do they work. Now, it's very, very important to understand that you, as an owner, pay payroll taxes. Now the best way to put it is these payroll taxes are broken down into Social Security taxes, medicare taxes. You also pay what's called State Unemployment Insurance in most states and FUTA, federal unemployment. So Social Security and Medicare are 7.65%. Everything else makes up the difference. So, whatever it is, I like to stop at a general number of 10%. So for every $100 that you pay in payroll, whether to yourself or to your employees, you basically pay $10 in taxes. So again, every $100, $10, every $1,000, that is $100 in payroll taxes. That is an additional expense on top of the payroll. Now, this is not an income tax, because you already have an income tax, you already have a state tax. This is a payroll tax. That is why I always say it is super essential for you to get a tax advisor. If you do not have a tax advisor, you are overpaying in taxes. So, if you have a profitable business, speak to your tax advisor. How to lower your payroll taxes and some of the strategies which we're going to talk about here.

Speaker 1:

All right, let's move on to the second part, which is owner payroll strategy. So for our tax advisory clients, everybody in the firm and for my own firm really, I use Gusto. Gusto is a payroll company. I personally don't like paychecks, adp or any of that stuff. Some clients have QuickBooks Online payroll, which I'm okay with, but we really put a lot of clients on Gusto because it is so easy to use. If you are interested in signing up for Gusto, I do have an affiliate link below. I think you get like $100 for signing up. Really cool company and really cool app and we use it personally because it makes it so much easier for us when we're implementing some of the strategies to basically implement it on that app. So how can we lower your payroll taxes as an owner of your own business?

Speaker 1:

The first thing you want to consider is lowering your own salary, especially if you're running an S corporation. So if you've got an S corporation, irs says, hey, you don't have to pay yourself a high salary, you have to pay yourself a reasonable salary. So a lot of business owners overpay in payroll taxes because, remember, payroll tax is what you pay as a business, which we already said about 10%, but you, as an employee, pay more payroll taxes, right, which is Social Security, medicare tax. That is 7.65% Altogether. That's about 18% of payroll tax that you are paying as an owner on your own paycheck. There's a couple of ways you can reduce it. Number one like I said, you can lower your salary to a reasonable amount. The second thing is that if you pay for health insurance for yourself, your spouse and your kids, you can actually include it as part of your W-2 wages, but also it will reduce your taxable social security and Medicare wages. So basically, it's going to reduce your payroll taxes. A lot of accountants, for whatever reason, do not use this strategy for their clients. So I like to call it 2% shareholder health insurance strategy, because if you are more than 2% owner of your own S-corporation, you can reduce down not only your taxable wages, but you also reduce down your social security Medicare wages. That is like 18% in tax savings, because it reduces entire social security Medicare wages. So 18% of your payroll taxes will be reduced by basically including your health insurance premiums on your paycheck. So that's a cool trick and that's why I like working with Gusto, because it makes it so much easier to implement. Check off, a couple of boxes, done deal.

Speaker 1:

Now, another thing I want to touch upon for owner payroll if you set up a 401k for yourself whether it's a regular 401k or a solo 401k you can withhold the distributions, right, the deferrals, so to speak. Excuse me, not the distributions, the contributions. Okay, you can withhold the contributions from your paycheck and then submit it to the financial institution that you have that handles your 401k. But the bad news is that those contributions that you make into the 401k do not reduce down your payroll taxes. So it's really important to understand you are saving on income taxes, but you're not saving on payroll taxes.

Speaker 1:

That's why we use some other strategies, such as the health insurance and lowering your salary to reduce down the payroll tax. So those are a couple of things that you can use in your payroll right away. Speak to your accountant and be like hey, are you implementing the 2% health insurance for me? If the accountant says no, just fire them. Get yourself a tax advisor, especially if you have a profitable business. The only way you, as a business owner, can really save money on taxes and I do this for a lot of clients we save our clients hundreds of thousands of dollars was just doing tax planning, because we are tax advisors. That is what we specialize in, so make sure you get yourself a tax advisor as well. All right, the third thing that we're going to talk about should you pay your spouse a salary, and we'll talk about it right after this break every S-corporation business owner must know.

Speaker 2:

In this PDF you can find seven tax strategies that you can start using in your business to instantly start saving money on taxes. Click on the link in the description below for a free download. Okay, cool.

Speaker 1:

Welcome back. Let's talk about hiring your spouse. So I've heard it all from business owners that say, hey, boris, like well, I tell them, like take your spouse off payroll. Like your spouse doesn't work, why do you put them on payroll? Or like if the spouse works, they pay them like two hundred thousand, three hundred thousand dollar salary or a hundred thousand dollars. I'm like why does your spouse get paid so much? And that the spouse gets upset at me, like what are you talking about? What do you mean? I get paid so much. But I'm like relax, I just want to talk strategy, okay.

Speaker 1:

So a lot of times what I've encountered excuse me, with business owners is that the spouse doesn't really do like major executive work, right, they're really helping on a back end with a lot of operations, maybe clerical work, administrative work, whatever that may be. The salary for that position is much lower on the market than what you pay your spouse. So I tell my clients, why don't you lower that salary? You can lower it. Because I want you to save on the payroll taxes, because, remember, between paying yourself or your spouse and paying a payroll tax, that's 18%. We want to be able to lower that number, right, and remember, the 18% is, like I said, in the calculation that we talked about earlier. But we want to lower that number. So if your spouse is getting overpaid in your business's salary, number one, you can lower that. You can lower that even more if, again, you have a family health insurance. So that's one strategy that I use with a spouse.

Speaker 1:

But people tell me, boris, I want to put my spouse on payroll because I want to contribute to their 401k, and I say, okay, that makes sense, right, they especially do that when spouse doesn't work for the business. I'm like, okay, I understand why you want to do it, that makes sense as of why you want to do it. But let's talk math. You are an effective bracket of 25%. That means for every money, for every dollar you're going to put away into 401k, you're going to save about 25% on that dollar. Okay, so you put away $100, you're going to save 25. You're going to save about 25% on that dollar. Okay, so you put away $100, you're going to save 25. But when you pay your spouse a W-2 wage, you pay 18% in payroll taxes. So let's say you pay your spouse what you put into their 401k, whatever $25,000, $30,000, whatever that may be the net savings are only 7%. So you're really saving 7% and when your spouse is going to retire, take that money out, they're going to pay taxes on that at more than 7%. So these are the things, the epiphany moments that my clients have, like the light bulb goes off, like, oh, but my financial advisor right, so anyways. So please, if you want to employ your spouse in your business, speak to your tax advisor. Come up with a strategy to do it. And again, we love to use Gusto Payroll because it helps us simplify a lot of things, including adding employee or taking off employee. I do have an affiliate link below. You get $100 for signing up, so go ahead and check that out. All right, that's the third thing.

Speaker 1:

Let's talk about the fourth thing. I don't know why I did that. That's a funny gesture. Anyways, let's talk about the fourth thing year-end payroll. So this is actually really really cool.

Speaker 1:

So if you run payroll I don't know like some business owners run it on a weekly schedule. Some run it on a bi-weekly, bi-monthly, whatever that may be. But if year-end is coming up, let's say it is December 31st and your pay period ended. I don't know. Let's say your pay period ended on December 31st or December 27th, but your pay date, the day that you're going to pay your employees, could be January 2nd, january 3rd, whatever that may be. If that's the case, and if you are cash basis taxpayer which probably you are, because a lot of small business owners are then the deduction is going to be next year, and if you want to accelerate that deduction, then change the pay date to December 31st.

Speaker 1:

I personally do this in my own business. I think our pay date is on the 5th of a new month and our pay period ends on like the 31st or the 30th. So at the end of the year I just make sure that the pay date is also on the same day the pay period ends. I get a nice payroll deduction in that same year. Now again, your deduction may come this year rather than next year. You may be like well, boris, I missed the deduction for next year. Well, not really, if you do the exact same thing. So it's a cool strategy. You don't have to use it. I use it for myself, I use it for some of my clients. They love it, especially when we're trying to bring the income down certain thresholds to qualify for other things. So this is a great tax strategy. Anyways, I hope this was helpful. Thank you and until the next time.

Speaker 2:

That's it for today's episode. Be sure to check out the description below for some free tax reduction resources that Boris put together for you. If you're ready to work with a tax advisor on your tax planning, be sure to schedule your call by heading over to wwwtaxplanningcallcom. That's wwwtaxplanningcallcom. And be sure to subscribe to our podcast to be notified when the next strategy is released.