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S Corp. Election
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The S-Corporation tax status can be elected in combination with an LLC or C-Corporation.
LLC with S-Corp. Election
The LLC benefits from the S Corporation status by allowing you to save 15.3% + in taxes after a reasonable salary and even more tax savings after all deductions are applied.
C-Corporation with S Corp. Election
If you are a C-Corp you can elect the S-Corp status to avoid double taxation if you need to take out money on a regular basis.
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While S corporations are corporations for purposes of state law, they are taxed similarly to partnerships for federal and state income tax purposes.
There are several tax advantages of an S-Corporation for high earners who are interested in taking out their profits regularly. Since an S-Corporation is a flow-through for tax purposes, unlike the traditional C-Corporation, shareholders are able to take advantage of the new 20% 199A Deduction.
S-Corp Shareholder Facts
1. You must pay yourself and other working shareholders a “reasonable salary.”
2. You pay 15.3 percent self-employment taxes on your salary.
3. S-Corporation is not its own entity (with natural human rights), it does not pay its own taxes.
4. It is a “pass-through” entity, also known as a disregarded entity.
5. The IRS doesn’t recognize the business as its own entity that pays taxes at the corporate level.
6. Any left-over profits will automatically be passed-through to shareholders by a disbursement K-1.
7. You can be a single-member S Corporation and hold all positions simultaneously.
8. The company is owned by shareholders, who elect directors.
9. The directors set a vision for the corporation and are responsible for the management of the corporation.
10. The officers and managers hired by the directors are responsible for carrying out the vision on a day-to-day basis.
11. You have maximum 100 shares to own or sell.
12. These shares can only be sold to individuals, single member LLC, US. Citizen or Permanent US. Resident.
13. Even though S-Corporations are strict about who owns their shares, it has little rules about what it can own.
14. Meaning that an S-Corporation can own LLC’s, and other C-Corporations.
15. You should create and maintain corporate bylaws.
16. You should have recorded minutes and meetings.
S-Corps Pay 20% Less
Yes, electing your LLC to become an S-Corporation will save you an immediate 20% or more in taxes. Call our office to find out if you are a good candidate for this tax savings strategy.
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Fast Payroll Setup
Before you can hire an employee, the State and IRS requires that payroll and payroll taxes be setup properly. Therefore, we will need to setup your company's payroll by applying for Workers Compensation, Unemployment, State and Federal Withholdings, and EFTPS Electronic Federal Tax Payment System. When we have completed the payroll setup, you will receive the required employee documents that each new employee must be filed with the State and IRS.
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