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Taxes: Is an S Corp the Right Choice for Your Business?

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Beth Williams
Beth Williams

by Beth Williams, CPA

When it comes to your small business, one of the most important decisions is selecting a business structure to help minimize your taxes. With the upcoming S Corporation Election and Tax deadline on March 15th, here are some important things to keep in mind.

S Corp Election Gives You Pass-Through Tax Treatment

A regular C Corp pays tax on its profits. But with an S Corp, these profits are passed along to the owners.

S Corp Election Can Be a Way to Avoid Double Taxation

With a regular C Corp, business owners can feel as if their profits are taxed twice – first on its profits and then if the profits are distributed to shareholders as a dividend (individuals pay taxes on the dividends).

An S Corp Lets You Pass Through Losses as Well

S Corp shareholders are allowed to pass the losses on to their personal tax return.  If you’re expecting a loss with your business, then an S Corporation may let you report the loss and offset other personal income for the year.

Can Be a Way to Minimize Self-Employment Taxes

Some self-employed individuals choose to form a corporation or LLC and then elect S Corporation status. This gives them the option to divide up their business earnings into both salary and distributions and pay less in Self-Employment or Payroll taxes. Keep in mind that if you adopt this strategy, you need to pay yourself a “reasonable” salary for the work you do.  Before you do this, it’s smart to talk with your CPA.

The S Corp Filing Due date is March 15 For Existing Businesses

If you want to elect S Corporation tax treatment, you need to act fast. Existing businesses have two months and 15 days from the start of their tax year (that’s March 15, 2016)

Need help with your Small Business?  Call us at Williams & Kunkel, CPAs, LLP at (972) 446-1040.

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