K1 instead of W2

[havaneselover]

Can anyone give me the rundown on advantages and disadvantages of going from a W2 employee to a K1 partner? I want to make sure I understand the tax implications. I know it will be best to consult with a tax professional, but any personal experience from anyone who has filed as a K1 would be appreciated. I'm trying to minimize surprises.

I do know I'm basically self-employed so I need to pay the employer's share of payroll taxes. I also know that I need to pay taxes quarterly. It looks like I can't pay for my health insurance on a pre-tax basis. Wondering what else I need to factor in.

 

[Claire&TheBoys]

Even if you are part owner of a corporation, you can still draw a salary with the company paying their share of payroll taxes. If they're planning to pay you "directors fees" or "distributions," then that would be a big fat NO from me. What percentage of the company are you being offered? If you are at least a 2% shareholder, then the company can pay for your health insurance, but it's taxable income to you. It's also a deduction, but that doesn't mean it's completely a wash as far as taxes go.

When you receive a K-1, your share of the company's income and certain expenses flow through to your personal tax return. So you're paying tax on whatever money you get from the company, and also on the profit of the company.

In all of the corporate returns I do, the shareholders take salary. As a matter of fact, beginning this year with the new tax laws, if an s-corporation has a certain amount of profit, it is required to pay out a certain percentage in salaries, and CANNOT pay employees just with 1099 income if the employee doesn't work anywhere else. I would definitely talk to a CPA before you agree to anything. I think you'd wind up worse off, if I had to guess. I would schedule a meeting with the CPA that prepares the corporate taxes for the company you work for. Alone. The CPA should be pretty honest with you as to whether it's a good move for you or not.