What changes when my business elects S-Corp Status?

This is a list of some of the bigger changes you will see when business entity elects S-Corp tax status:

 

• Your business will start filing an annual Corporate Tax Return  - our S-Corp Core 4 Package include the filing of your business tax return (when a full year Core 4 Package is paid).
  S-Corps file their taxes on a corporate tax return - completely separate from your personal tax return.
  Once your Corporate tax return is complete we will provide you a summary K-1 Form which must be reported on your personal tax return.
  
  
• You will be responsible for filing your personal returns - as a convenience to our small biz owners, we do offer a partnership with a personal tax preparer. See Do you offer Personal Tax Return service?
  
  
• Your business will start paying you S-Corp Owner/Officer Payroll - per IRS requirements, you will have to start monthly W-2 employee payroll. That means every time a paycheck is run, the associated payroll taxes will also have to be paid every month.
  
  NOTE This is how s-corp's lower your taxes : 15.3% FICA tax is assed only on the dollars you run through payroll thus sheltering the remainder of your business profit from 15.3% Self Employment (FICA) tax. That is where the huge tax savings is.
  
  Obviously , we will run as little as possible through payroll in order to maximize tax savings on your remaining business profit. Our CPA will tell you how much to pay yourself. The higher your profit is, the higher the salary must be. So as you earn more, we will raise the salary as needed.
  
  
• Once you are receiving W-2 payroll, you will no longer be required to pay Quarterly Estimated Income Taxes - see more details at am I required to make Quarterly Estimated Tax Payments?
  
  
• You will need to review monthly bookkeeping reports - this is how we you review the data that goes directly to your corporate tax return. We close each period as we go, so that when we get to January we are immediately ready to prepare your Corporate tax return. It is therefore extremely important that you review your reports every month. 
  
  
• You will need to read our Monthly Owner Emails - it is extremely important that s-corp owners stay informed, we will ask that you read every Monthly Owner Email. We work hard to constantly communicate regarding compliance work, deadlines and VIP information tax.
  
  
• If you want personal Home office & personal Auto Deductions you will need an Accountable Plan - an S-Corp cannot directly pay expenses for assets it does not own  (i.e. your house & personal vehicle). The IRS requires that these deductions be reported to the business and that the business reimburse you. This is called an Accountable Plan; see link for details
  
  
• This huge tax savings will cost a little more in Accounting Fees- the idea is that your tax savings will more than cover ALL accounting costs PLUS put money back in your pocket. We only recommend S-Corp election once you've reach this threshold and it becomes a win-win for all.
  
  Examples of added costs typical for S-Corps:
  Officer Payroll 
  Accountable Plan 
  Tax Planning 

Again, the entire point of all this extra work to file taxes as an S-corp is that it eliminates a 15.3% Self Employment tax that is currently being assessed on your LLC's entire business profit by adding the Payroll requirement. 

 

See also Can my Business (S-Corp) deduct my Home Office and use of my personal Vehicle? Intro to Accountable Plans

See also Can my Business deduct Medical Insurance premiums?

See also What is an S-Corporation? How does it lower my taxes?