Tax Benefits of Establishing an S-Corp for Business Owners
As a business owner, finding ways to minimize taxes while maximizing profits is essential for long-term success. One strategy that can be particularly advantageous is establishing your business as an S-corporation (S-Corp). This post will explore the tax benefits of forming an S-Corp and how it can help reduce your overall tax burden.
What is an S-Corp?
An S-Corp is a tax designation granted by the IRS that allows your business to avoid double taxation. In an S-Corp, the income, deductions, and credits pass through to the individual tax returns of the shareholders, meaning the company itself doesn’t pay taxes on its income.
Tax Benefits of an S-Corp
Avoid Double Taxation: With an S-Corp, business income is not taxed at the corporate level, unlike C-Corps, which are subject to corporate tax and then taxed again when dividends are paid.
Self-Employment Tax Savings: S-Corp owners can pay themselves a reasonable salary and take the rest of the profits as distributions, which are not subject to self-employment tax.
Tax Deductible Business Expenses: S-Corp owners can deduct expenses like business-related travel, equipment, and healthcare premiums, reducing taxable income.
Potential for Lower Overall Taxes: By combining salary and distributions, S-Corp owners often pay less in taxes than they would with a sole proprietorship or partnership.
How to Set Up an S-Corp
Setting up an S-Corp involves filing with the IRS and meeting specific eligibility requirements. It’s important to work with a professional to ensure your business is structured correctly to take full advantage of the tax benefits.
What Should You Do Now?
Want to learn how an S-Corp can benefit your business? Schedule a free consultation with Asset Armor to discuss whether this tax structure is right for you.