Dan wrote:

Short Wave Sportfishing wrote:

On Fri, 12 Jan 2007 03:51:25 GMT, "Mike" wrote:


Funny how big business works. In my small business, I'm the LAST one
to get paid.



I've been working with a guy I've known for years - he started up a
mechanical engineering/machine shop that does custom fittings and
highly specialized machined parts for all kinds of industries. He has
some metallurgical expertise that's hard to find and some machinists
who are absolute geniuses with a CNC machine.

He pays himself $1 more than the highest paid employee he has.


The problem is that he is the business owner. I could pay myself $8.00
and hour but, at the end of the year, my personal income tax bill would
be well over $100K if I took my profit as retained earnings. He's
probably an S-corp, too so if he's profitable, the money has to go
somewhere.


There is a simple reason for this.

Wages are subject to FICA taxes up to around 95k a year, and there is no
limit to the Medicare Tax.

By taking a reasonable wage, and then taking the rest of business
profits as dividends, you legally avoid paying the addiontal taxes.