Who Pays More Idaho Taxes on Owner/Shareholder Income?
When you first see that 21 percent tax rate for the Idaho C corporation, you must think that this could be the choice of entity for your Idaho business operation.
Further, when you find yourself in the out-of-favor group for the 20 percent deduction, you naturally gravitate to thinking about the Idaho C corporation, perhaps as a means of getting even.
The table below gives you a good look at how you would pay taxes on your profits, depending on your Form 1040 tax bracket.
For Example. Let’s say that you are in the 34 percent tax bracket in Sandpoint, and let’s say that you have $100,000 in profits.
If you operate as an Idaho S corporation, the profits come to you on a K-1, and you pay your Form 1040 taxes at the 34 percent rate, for a total tax on your Idaho S corporation profits of $34,000.
If you operate as an Idaho C corporation, the profits are first taxed at the Idaho C corporation level at a rate of 21 percent, for a tax of $21,000. This leaves you with $79,000 of the $100,000 in profits available for distribution as a dividend to you.
You are in your “give me the money” mode, so to get the cash, you endure the double taxation, starting with the dividend tax of 15 percent. This creates an $11,850 tax ($79,000 x 15 percent).
Your tax bracket also triggers the net investment income tax (NIIT) that applies because of your dividend income. The NIIT is $3,002 ($79,000 x 3.8 percent).
Hayden Idaho Federal Taxes
As an Idaho C corporation, your total federal taxes on the $100,000 of income are $35,852, which consists of the following:
- Idaho C corporation taxes of $21,000
- 1040 dividend taxes of $11,850
- 1040 NIIT of $3,002
Based on the same $100,000 in profits, operating as an Idaho S corporation results in $34,000 to the government compared with the Idaho C corporation, which pays $35,853. The winner: The S corporation.
It’s All About the Idaho Fringe Benefits in Post Falls
However, this is not taking into consideration the numerous amounts of fringe benefits that the Coeur d’Alene C corporation can provide its owners/shareholders with. If you tax plan correctly, the C corporation can be more profitable than the S corporation.
Does an Idaho S Corporation in Post Falls Provide Large Fringe Benefits?
Yes. An Idaho S corporation cannot provide as many tax-free fringe benefits to shareholders-employees as a traditional “C” corporation. However, an S corporation still provides more tax-free benefits to shareholder-employees than an Idaho LLC’s in Post Falls taxed as a sole proprietor or partnership. Before you get excited about the fringe benefits of an Idaho S-Corporation, beware that there is also a special rule that applies to shareholders that own more than 2% of the company.
The Idaho Two-Percent Rule
Idaho S-Corporations shareholder-employees lose tax-free fringe benefits when they own 2 percent or more of the company.
According to this law an Idaho S-Corporation cannot deduct these payments as business expenses and must treat the payments as taxable W-2 wages paid to the shareholders.
- Cost of group term life insurance coverage up to $50,000
- Contribute to accident and health plans
- Reimburse for meals
- Lodging furnished for the convenience of the corporation
- Establish cafeteria plans
- Contribute to employee health savings accounts
- Reimburse for the cost of qualified transportation
- Adoption expenses
- Moving expenses
Exceptions to the Idaho 2% Rule
Post Falls Shareholders that own more than 2% do not lose certain fringe benefits include, payments to pension and profit-sharing plans, compensation for injury, reimbursements for educational assistance, dependent-care assistance, qualified employee discounts, working condition fringe benefits, qualified retirement planning services and on-premises athletic facilities.
- Idaho S corporation shareholder-employees can receive retirement plan benefits based on their earned, W-2 income and not on their shares of the corporation profit.
- pension plans to employees, including shareholder-employees.
- A working condition fringe benefit is an expenditure that would be deductible as an employee business expense if directly paid by the employee. This could be training or education to further their skills for the company.
- Post Falls Idaho S Corporations can provide a vehicle to a shareholder-employee as a tax-free fringe benefit if only used for business purposes. If using for personal reasons, the fringe benefit turns into taxable income.
- A de minimis fringe benefit refers to small, hard-to-track benefits that an employee receives. This could be coffee, water, snacks or meals in the work place.
When Marketing your Coeur d’Alene Idaho Business you will need to know what a “Takeaway Close” is
Does this situation sound familiar?
Guest: Do you have any rooms available?
Idaho Hotel Desk Clerk: Sorry. No, I do not think so. (dramatic pause) Wait, let me check; maybe there has been a cancellation. If there is a room available, do you want it?
Guest: Yes, please.
Miraculously the clerk will find a room after a few moments of fidgeting with the computer and a few “it doesn’t look good” sighs. Of course, the room that is suddenly available will be a premium room like a honeymoon or executive suite and will cost an extra $50 over a standard room. This is what is called a Takeaway close and is defined by telling Someone they can’t have your product/service to make them want it more.
Why Idaho Hotels inn CDA Use This Tactic
Coeur d’Alene Hotels do this because they know that travelers are tired and more agreeable if they think that every hotel and motel in town is full. The thought of having to sleep in a car does not appeal to many people, a motivating factor to buy. Not deceptive, just using effective closing skills that are required in the extremely competitive accommodation industry.
Another Way To use The Takeaway Close
Another example of the takeaway close is to give your prospect something, providing they buy; the best something is generally money. For instance, if you sell hot tubs, at the beginning of the presentation (not during or near the close) in the showroom, at the trade show, or wherever the sales presentation was being conducted, you could give your prospect a “$200 Hot Tub” coupon. The coupon could be redeemable or applied against the purchase of any hot tub in stock on that day. Now the prospect has something of value, namely $200, and if she does not buy a hot tub today, you will take that $200 away. This is a powerful closing simply because no one wants to have something taken away, especially money once she already has it in her possession.
Why You Should Use This Tactic
The take away close us one of the best ways to motivate the people of CDA to make Decisions that you want them to make is to tell them that they cannot have something, or that they cannot do something. For decades top hotels have trained front desk clerks to master the takeaway close because of how useful a tactic it can be.
When starting a new business in Idaho (Idaho S-Corporation or Idaho C-Corporation), something you need to take into account is the Idaho Fringe benefits rules/laws and how to use them to your benefit.
Idaho Fringe Benefits
Health insurance premiums paid by the Coeur d’Alene corporation can be received tax-free by the owners of an Idaho C corporation. A corporation can fully deduct these premiums. Idaho S corporation owners must report these benefits as income and then deduct the premiums from gross income on their individual income tax return, resulting in a “wash” for income tax purposes. While the Idaho S corporation in CDA will receive a full deduction for these premiums, the net deduction passed through to the shareholders will likely be less than their share of premiums unless there is a single owner or equal owners with the exact same cost of insurance.
Long Term Idaho Care and Disability Insurance in Sandpoint
An Idaho CDA C corporation can fully deduct long-term-care and disability insurance premiums without any additional income reported to the owners. Idaho S corporation owners would have to pick up these benefits as gross income for the S corporation to fully deduct these premiums.
Medical Reimbursement Plan
Where most owners of an Idaho C corporation are also employees, a medical reimbursement plan under Sec. 105(b) allows the C corporation to cover all medical expenses not paid for by the insurance plan. As long as the plan is nondiscriminatory, the reimbursements are not taxable to the employees. However, to avoid penalties under the Idaho Patient Protection and Affordable Care Act, P.L. 111-148, beginning in 2014, a medical reimbursement plan generally must be integrated with a group health plan such as:
- health insurance premium
- long-term-care and disability insurance premiums
- medical reimbursement plan
If you are a business in CDA, Rathdrum, Post Falls, Hayden, Athol or Sandpoint Idaho then give CDA Accounting a call to help.
Here are a few more clever Coeur d’Alene Idaho tricks that you can use for crafting great sales letters that are guaranteed to get you the response that you want.
Use action-oriented power words and phrases that draws in the people of Coeur d’ Alene like:
- free samples
- call now
- set an appointment
- delivery on time
Action words and phrases get the reader instantly involved in the message and theme of the letter and excited to learn more.
Never end a page with a completed sentence if the letter is more than one page long. Instead force the reader to continue reading. Do this by stating an incentive or special offer at the bottom of the first page and completing it at the top of the second page. Or use an additional benefit that your product or service provides the readers as a way to keep them involved in the letter. Basically, be it an incentive, guarantee, or second big benefit, use something that is powerful and important to the readers to ensure that they turn the page and continue to read and stay involved.
Make It Visually Appealing
Make your Coeur d’Alene sales letters visually appealing with color, graphics, and bold paragraph headings on attractive professionally printed letterhead emblazoned with your Idaho business logo and catch phrase. Likewise make sure that your color selection, font, and logo are all consistent with the rest of your printed business materials. People visually link consistent styles with a CDA business when they are repeatedly exposed to the Idaho business ‘unified corporate image-prospects and customers can begin to instantly identify your Idaho business just by the envelope, letterhead, or color scheme that you use in a consistent manner throughout all your marketing and promotional activities.
Use Plain English
Make the letter easy to read and understand. Always skip the technical jargon and just use plain English. Never go out of your way to make the reader feel stupid by using language and terms that they could not possibly understand. Nothing will turn a reader off faster than this. Likewise check spelling, grammar, and structure and if time allows try to let the letter sit for a few days then return to complete the editing. You will almost always find information that you want to include and some that you want to delete.
Tell the Reader What to Do
Tell the CDA readers what you want them to do:
- Stop by the showroom
- Order now
- Log on to your website for more exciting information.
Tell the readers what you want them to do next and make sure that you give them the tools required for them to take that desired action. The required tools can include full contact information, a coupon if used as an incentive, a customer testimonial if you want them to contact happy Idaho customers, or a self-addressed and stamped envelope if you want them to respond by mail, just to mention a few. Once again, the easier you make if for the people of Coeur d’Alene to do what you want them to do, the more people who will do it.