What is an S-Corporation? How does it lower my taxes? – Singletrack Accounting

What is an S-Corporation?

S-Corporation is a taxing status.
LLCs can "elect" to be taxed as an S-Corporation.
Companies electing S-Corp tax filing status remain LLCs, again the S-Corp status merely refers to how your business files it's taxes.

S-Corporations file separate annual business tax returns on IRS Form 1120-S, due March 15 of each year.

S-Corps do not pay income taxes; the net income of the S-Corp is "passed thru" to the business owners' personal income tax return, IRS Form 1040, where personal income tax is calculated and paid.

How does it lower taxes?

S-Corps provide massive tax savings.

LLC and Partnership owners pay 15.3% self-employment tax on their entire net income.

S-Corp owners are required to pay themselves as W-2 Employees and pay the 15.3% on a small salary through monthly payroll, rather than their entire net income.

Thus eliminating the remainder of all net income from 15.3% tax !

How much to pay yourself as an S-corp owner to maximize the 15.3% tax savings? You need good advice.

The IRS requires S-Corp Owners to pay themselves "reasonable compensation" so as to not completely avoid all the 15.3% social security and medicare taxes. At Singletrack, we will provide an absolute minimum salary recommendation that we feel is both defendable in an audit and maximizes your self employment tax savings.

The trade-off for massive tax savings is higher accounting fees

We only recommend the S-Corp strategy at the point where your tax savings more than covers all additional accounting requirements/fees and STILL puts savings back in your pocket.
In fact we'll give you the exact $dollar amount of savings vs additional costs and walk you through this option.

This is one of the biggest tax reduction tools we have available and it opens doors to many more future tax strategies.

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