Every one of those strategies transforms earned cash to unearned cash and therefore are no longer subject to self employment tax, a saving of potentially 15.3%.
For other taxpayers it might be more advantageous to try and increase the self employment tax.
You might wish to do that to be eligible for social security benefits or be eligible for several tax credits.
There are 3 significant benefits from electing the optional methods:
Qualify taxpayer for social security benefits
Generate a higher earned income credit
Generate a higher childcare credit.
Case Study: Mr And Mrs Smith in the year 2007 reported a loss of $2,000 on his schedule C and were happy they didn’t owe any federal taxes. They explain that Mrs Smith actually works in the company, but hasn’t received any wages for the services as an employee due to the additional administrative matters and payroll taxes involved with payroll. The Smith’s have two children. Proper tax planning would uncover a different approach. One particular approach might consist of earning income and also being eligible to collect some of the social security benefits.
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