When Do You Know You're Doing Everything Wrong?
episode
Suze Orman's Women & Money (And Everyone Smart Enough To Listen)
29 min
2 speakers
4 chapters
transcribed 2 months ago
Transcript
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Transcript generated automatically by AI and may contain errors.
What is the format and purpose of this Ask KT & Suze Anything episode?
Hi, everybody. Good morning, Susie.
It is always a good morning with you, Ms. Travis.
It's July 26, 2020. No, it's not. No, it's not. Wait, wait, wait, wait. Okay, so we pre-recorded this podcast before we left for our trip to Italy for her birthday.
This is another Ask KT and anything combined with Susie's school. Now, why do I say that? Because some questions require more of a detailed explanation. It's more like a teaching part. And others are just kind of answers to people's questions. So therefore, we're combining them kind of together. But Are you ready, Katie?
I'm ready. So that's how I'm opening today's podcast. On the Women & Money app, I got another little series of questions, but this one in particular I think is really important. It says, Susie, when is the last calendar day I can contribute to a solo 401k?
Yeah, I'm kicking myself because KT, I should have had that in the masterclass two weeks ago. What was I thinking? But here's what you need to get, all right? You have to open. And by the way, if you don't know what I'm talking about with a solo 401k or a SEP IRA, go back two weeks from today. and listen to the masterclass on solo 401ks versus SEP IRAs. And you'll find out that if you're self-employed, you are crazy in most cases not to have a solo 401k. However, the last day that you can open a solo 401k is December 31st, let's say this year. If you are going to open up one for 2026, you have to have opened it up by December 31st, 2026. However, that doesn't mean that you have to fund it by December 31st, 2026.
But here's what you need to know. If you are a sole proprietor When you open it up, and it has to be opened by December 31st, 2026, if it's for this year, you have to elect how much of your own salary deferral you are going to put in it. You don't have to do it. You just have to make that election. and you have for the actual money you have till the day that you file your taxes. So KT, for 2026 contributions, that would be April 15th, 2027, or all the way, by the way, like we do, till October 15th, 2027, if you file an extension. However, here's what everybody needs to know. Because remember, when you're self-employed, you have two ways to go. You If you're an S corporation and you pay yourself a paycheck, a W-2, which chances are you will, then your employee contribution, your employee hat has to come out of that paycheck through your payroll.
And that has to be done by December 31st of this year. no extension, nothing. Your employer hat or your employer contribution can still wait until you file. Now, how is that for a complication, KT? That was a little mini Susie school.
Susie, tell everyone what is the difference between an S-Corp and a sole proprietorship?
Before I go to an S-Corp, everybody, let's just start simple. Well, a sole proprietorship. I always want you to think of the name of something. A sole proprietorship means it is just you.
When is the deadline to open and fund a solo 401(k) for the tax year?
So maybe you're a freelance, you consult, you sell things, and you've never filed any other special paperwork, all right? It's just you and your business, same person. The business makes a dollar and And that dollar is yours and it goes right in your personal tax return. Now, you may think that's just great, everybody. But you probably didn't know that on that money, on the profit, you're paying self-employment tax. That's Social Security and Medicare, a little over 15% on every dollar that you make. That's essentially how it is. So that's a sole proprietorship, very easy. You and your business are one. But when you form an S-Corp, You are not one with your business. The S-corp is a separate business.
It's not just you anymore. And you, everybody, you become its employee. So therefore, you have to pay yourself a real salary, like a paycheck, a W-2, just like you work for anybody else. However, you only pay Social Security and Medicare tax on your salary, but the profit above your salary, that comes to you as a distribution, so there is no self-employment tax on it, none. So, bottom line, if your business is making serious money, an S-Corp saves you thousands in payroll taxes every single year.
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Chapters
4 chapters
1
What is the format and purpose of this Ask KT & Suze Anything episode?
0:02–4:19
2
When is the deadline to open and fund a solo 401(k) for the tax year?
4:19–10:45
3
How do contribution rules differ for sole proprietors versus S‑ corporations?
10:45–17:46
4
What are the practical differences between a sole proprietorship and an S‑Corp?
17:46–29:29