Convert Your Business To An S Corporation and Eliminate Self-Employment Taxes

Posted on Posted in Uncategorized

If you are reading this post you probably report your business on Schedule C of your Form 1040 or Form 1065 (for Partnerships).

 

Have you noticed that the self-employment tax significantly drains your cash? The S corporation may plug a good chunk of that leak because only the W-2 wages that the S corporation pays to you would suffer federal employment taxes.

 

Here’s the big picture: The S corporation

 

  • deducts the W-2 wages;
  • passes the remaining taxable income to you—the shareholder who reports the income on his Form 1040; and
  • makes cash distributions to you—the shareholder.

 

The passed-through S corporation taxable income increases the tax basis of your stock; therefore, distributions of corporate cash flow are usually federal-income-tax-free.

 

This tax regime places S corporations in a potentially more favorable position than equivalent businesses conducted as sole proprietorships, single-member LLCs that are treated as sole proprietorships for federal tax purposes, partnerships, and multi-member LLCs that are treated as partnerships for federal tax purposes.

 

That’s because S corporations can follow the tax-smart strategy of paying modest salaries to shareholder-employees while distributing most or all of the remaining corporate cash flow to them in the form of federal-employment-tax-free distributions.

 

And the best part? If your business was formed as an LLC you can convert to S Corporation tax treatment while remaining an LLC. You do not need to form a new entity or restructure. It is simply a tax designation that is registered with the IRS.

 

If you would like to examine the potential tax savings available to you with a switch to the S corporation, please call our team at +1 904 834 5249 or contact us here.

What Is The Corporate Transparency Act (CTA) and Does It Affect You?

Do you own or advise a corporation, limited liability company (LLC), limited partnership, limited liability partnership, limited liability limited partnership, or business trust? Or are you planning to form one of these entities? If so, be alert. There’s a new federal filing requirement coming. Back in 2021, Congress passed a new law called the Corporate

Read More »

Get A Business Tax Deduction For Your Next Cruise Trip!

You may not have thought of this, but taking a cruise ship to Mexico for a business meeting is acceptable as a deductible form of transportation. Because Mexico is in the tax law–defined North American area, the law says that you need no stronger business reason to deduct your trip to Mexico than you need

Read More »

Maximize Your Business Mileage Deduction

We absolutely, positively don’t like commuting mileage. You should dislike it, too. It’s personal. It’s not deductible. But with knowledge, it’s avoidable. Let’s eliminate commuting and make those trips from your home to your office deductible. The law gives you two ways to eliminate commuting from your home to your outside-the-home office: 1. Make a

Read More »

4 Reasons You Need a Virtual CFO

Most companies can benefit from the advice and expertise of a Chief Financial Officer. But, for most small and medium businesses, the cost of another full-time addition to the C-Suites just doesn’t make sense. Enter the virtual CFO, a professional from outside the organization who fills the role as needed. Not sure how a virtual

Read More »

Monthly Accounting for Attorneys

Every month, attorneys have complex accounting to do, and this task can get away from you if you don’t keep up with it or if you don’t have a professional accountant on-staff. An attorney’s monthly accounting includes billing for clients, payroll (weekly or bi-weekly or bi-monthly), and managing their Interest on Lawyers Trust Account (IOLTA),

Read More »