Hacker News Reader

IANAL or a finance guy so forgive me for not knowing the specifics of this, but can't you issue dividends that are taxed significantly lower than payroll which requires income tax? Or is this only capital gains?

View on HN

ordinary dividends are taxed like income. the only difference is that you don't have to pay FICA (social security and medicare) on that money.

This year, self-employment social security is 4.2% + 6.2% = 10.4% up to wage base of 106800 and medicare is still 1.45% + 1.45% = 2.9% --> 13.3%

(the reason why there are two numbers for each part is that there is a portion the "employee" must pay and a portion the "employer" must pay. The Obama payroll holiday only extended to the employee portion.

you dont pay SS tax but you pay two income taxes. Regular corporate income tax then personal income tax on any distributions.

for a C corp the income taxes are deductible up to a reasonable amount (so its not quite two full income taxes). At a small level, it may more sense to make salary payments rather than dividends (depends on the scale)

last i recall, pub 535 discussed this

Reply on news.ycombinator.com