| Author |
Message |
David G. Axt, CCS, CSI ,SCIP
Senior Member
Username: david_axt
Post Number: 1836
Registered: 03-2002
| | Posted on Tuesday, October 06, 2020 - 04:14 pm: |    |
My accountant is encouraging me to create a S Corporation for my specification writing business. She said that I could save a lot of money on income taxes.
Are any of you an S Corporation and what are your experiences? Thanks.
David G. Axt, CCS, CSI, SCIP
Specifications Consultant
Axt Consulting LLC |
Phil Kabza
Senior Member
Username: phil_kabza
Post Number: 670
Registered: 12-2002
| | Posted on Tuesday, October 06, 2020 - 04:53 pm: | |
We have been a Sub S corporation since we formed in 2003. S Corporation status is a Federal tax status that is elected by the corporation ownership such that the corporation pays no income tax, but rather passes all profit or loss through to the owners' individual 1040, proportionate to their ownership, and is taxed there. You don't say if you are a sole proprietor reporting business income or loss on a Schedule C of your 1040, akin to a simple partnership, or if you are a C Corporation which pays taxes on profits retained in the business. Your accountant should be able to model your tax situation in either form to help with the tax side of the decision. Having a corporate format of some kind is convenient for several reasons, including distancing your personal assets from your business contract liabilities, and making it easier to bring in an equity shareholder should you choose to do so in the future.
Phil Kabza FCSI CCS AIA
SpecGuy Specifications Consultants
www.SpecGuy.com
phil@specguy.com |
David G. Axt, CCS, CSI ,SCIP
Senior Member
Username: david_axt
Post Number: 1838
Registered: 03-2002
| | Posted on Tuesday, October 06, 2020 - 05:32 pm: | |
Phil,
My consulting business is currently a Single-Member Limited Liability Company (SMLLC) because it is just me and the cat.
I understand a little about how S corporations work with having to create payroll and only being taxed on individual's wages. The main reason for my question was to see if others had a positive or negative experience.
I know setting up and running an S corporation will be more paperwork and I will spend more money to have my accountant run things, but hopefully the offset in taxes will be worth it.
David G. Axt, CCS, CSI, SCIP
Specifications Consultant
Axt Consulting LLC |
Michael Chusid, RA FCSI CCS
Senior Member
Username: michael_chusid
Post Number: 565
Registered: 10-2003
| | Posted on Tuesday, October 06, 2020 - 05:54 pm: | |
I had a S Corp when I had staff, payroll, and what I perceived to be increased risk. Since going solo, I have been a sole proprietor and the paperwork is much simpler.
Michael Chusid, RA FCSI CCS 1-818-219-4937
www.chusid.com www.buildingproduct.guru |
Margaret G. Chewning FCSI CCS
Senior Member
Username: presbspec
Post Number: 335
Registered: 01-2003
| | Posted on Tuesday, October 06, 2020 - 11:05 pm: | |
I had an accountant convince me to go S-corp which would have been fine had he not messed up in not informing me of what it all required. Long story short, I changed accountants multiple times, over 9 years my taxes were done incorrectly, and I did not know to set up a salary for myself. When we caught it, I had to have 9 years of taxes amended; Had to pay some years, got refund on a couple of them. Still dealing with IRS on the getting the penalties waived.
Lesson: Get all the information regarding what needs to be filed differently and make sure you tell the tax guy you are S-corp and he knows what that is.
Good luck |
Phil Kabza
Senior Member
Username: phil_kabza
Post Number: 672
Registered: 12-2002
| | Posted on Wednesday, October 07, 2020 - 12:50 pm: | |
Accountants are like architects. Some of them are good; some of them are not. You want one with grey hair that is part of a partnership or larger firm, but who will pay attention to you and offer sound business advice. Good guidance from Michael and Margaret. We went through 3 accountants in the first 7 years of our business with experiences like Margaret's; now have a good stable accountant for the past 7 years. I am not certain that there is significant tax savings in moving to the S Corp election over your SMLLC - I'd want it demonstrated.
Phil Kabza FCSI CCS AIA
SpecGuy Specifications Consultants
www.SpecGuy.com
phil@specguy.com |
Paul Sweet (Unregistered Guest)
Unregistered guest
| | Posted on Wednesday, October 07, 2020 - 01:58 pm: | |
Also check tax laws. I looked into it several years ago, and forget whether it was Virginia or the feds who taxed Professional Corporation income at the highest bracket, so I didn't do it. I guess they figured anyone who incorporated was a wealthy doctor or lawyer! |
John Bunzick
Senior Member
Username: bunzick
Post Number: 1824
Registered: 03-2002
| | Posted on Wednesday, October 07, 2020 - 04:17 pm: | |
Not legal or financial advice, but just wondering: How does an S Corp save taxes when the income is passed through taxed at your personal tax rate, as is income for a sole proprietor? I would think allowable deductions and reporting would be the same for both. I've observed a lot of LLCs formed by professionals practice firms, have no idea of the advantages of that form. |
Jeffrey Wilson CSI CCS SCIP
Senior Member
Username: wilsonconsulting
Post Number: 336
Registered: 03-2006
| | Posted on Wednesday, October 07, 2020 - 06:20 pm: | |
From my experience, the only savings is in social security taxes. It is paid on salary, but not on distributions to shareholders. The amount of salary has to be justifiable (comparable to the market for similar work). Income over the base salary can be paid as distributions.
Any SS tax saved effectively reduces the amount you're entitled to at retirement, if you're counting on that. You can hope to do better investing the savings, but the difference might not be substantial by itself.
I've had S-corp status since going full time into spec consulting 31 years ago, and haven't experienced any of the problems mentioned -- or any others for that matter. I guess having a trusted attorney to set up the corp and an experienced accountant to handle tax filings is crucial to a successful experience. I remember the setup being simple and inexpensive at the time. My accountant saves me from all the paperwork for less than $1K annually.
My rationale for starting the corporation was about liability, not tax savings.
This message does not constitute legal or financial advice 
Jeffrey Wilson CCS CSI SCIP
Wilson Consulting Inc
Narberth PA |
Robin E. Snyder
Senior Member
Username: robin
Post Number: 811
Registered: 08-2004
| | Posted on Friday, October 09, 2020 - 12:39 pm: | |
David: Also need to take into account retirement plan options as there are different options available. I am an LLC but taxed as a corporation because of the benefits it provided for my retirement plan needs |
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