Smart Solutions That Decrease Social Security and Medicare Taxes
By Here are some important updates and strategies regarding Social Security and Medicare taxes that may significantly impact your business.
For 2024, the Social Security tax ceiling increased to $168,600, resulting in a maximum Social Security tax of $20,906 for high-earners. The Social Security Administration projects this ceiling to rise annually, reaching $242,700 or more by 2033. Additionally, the government adds a 2.9 percent Medicare tax to all wages and self-employment income, with an extra 0.9% for high-income earners.
If you’re self-employed, these taxes can be particularly burdensome. Here are three strategies that can potentially reduce your tax liability:
- Operate as an S corporation. This structure allows the corporation to pay you a reasonable salary and distribute the remaining profits to you, exempt from self-employment taxes.
- Leverage community property rules. Married filers living in community property states can use IRS rules to eliminate or create a spouse partnership in order to reduce self-employment taxes.
- Avoid the husband-wife partnership classification. With close attention to partnership attributes, you can avoid the husband-wife partnership classification and reduce overall self-employment taxes.
Each of these strategies has specific requirements and potential trade-offs. If you want to discuss the possibilities, please call me on my direct line at 408-778-9651.