One question we hear a lot from those who are self-employed and doing some type of payroll is: “How do I balance my taxes and save for the future?” For this let’s discuss your tax analysis…
Let’s go through an example so I can show you some of the mechanics of how a tax analysis works.
If you pay yourself $1,000, you will receive a net check of $923.50 after all mandatory taxes have been taken out such as Social Security (6.2%) and Medicare (1.45%). This means that if you want to save for the future, reduce your taxable wages or make payments towards your tax bill, you have $923.50 left to allocate.
The payroll deductions can be any of the following:
- Pre-Tax Deductions
- Traditional 401(k)
- Health insurance
- Dental Insurance
- Health Savings Account (HSA)
- Disability Insurance
- Federal Tax Withholdings
- State Tax Withholdings
- After-Tax Deductions
- Roth 401(k)
- Disability Insurance
The payroll deductions going towards any of the items listed above can be either as a percentage of earnings or as a fixed dollar amount per paycheck.
If you elect to defer $100 from your wages into your Traditional 401(k), this will reduce your Taxable Wages to $900. You are receiving the benefit now since you are taxed on less income and the funds in your retirement are growing tax-deferred which means there are no tax implications until you start making withdrawals.
You may also elect to have a certain dollar amount or a percentage of each paycheck to go towards your Federal and/or State income tax. For example, if your State tax bill is $1,200 and you get paid twice a month… you could choose to have either 5.0% of your wages withheld towards this or $50 per paycheck.
As a business owner, you have a lot of options in how much you pay yourself, when, how much is withheld and how much is set aside for the future. The flexibility is all in your hands to choose the best and most efficient way to do it!
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Contact us today for a free 30-minute consultation!
One of the most common questions we get from high earning business owners and corporate executives is: how can I be saving more money for retirement? Here are several options to consider, along with a video and free PDF guide.
Steve enjoys getting to know clients and hear their unique stories and the lessons learned which has brought them where they are today. One of the reasons he enjoys what he does is the ability to show the outcome that can be achieved with different choices. He also enjoys continually learning.