assembled 2017 breakout session: s corps, taxes & you
TRANSCRIPT
Breakout Session: S Corps, Taxes & YouAssembled 2017
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Breakout Session Roadmap
✓ The “corporate treatment” explained
✓ Become a corporation
✓ Prepare taxes like a corporation
✓ Save taxes like a corporation
The “Corporate Treatment” Explained
The “Corporate Treatment” Explained
Benefits of an LLC●Asset protection
●Pass-through taxation
●Larger retirement contribution limits
●Tax flexibility
The “Corporate Treatment” Explained
Tax Flexibility● By default,
○ Single-member LLCs are treated as a sole proprietorship.
○ Multi-member LLCs are treated as a general partnership.
●LLCs can elect to be treated as an association taxable as a corporation
The “Corporate Treatment” Explained
S Corporations Explained●An S corporation starts out as a regular corporation.
●Some corporations can be taxed under IRS subchapter S.
●An S corporation is a “disregarded entity” and pays no corporate taxes.
●S corporations pass its profits / losses to be taxed at individual tax rates.
The “Corporate Treatment” Explained
S Corporation Wages and Capital Gains●Wages gets taxed as regular income.
●Shareholder income is not subject to self-employment (SE) tax.
Become A Corporation
Become A Corporation
Would my LLC qualify for IRS subchapter S treatment?
●U.S. corporation
●No more than 100 shareholders
●One class of stock
●Certain industries are ineligible (financial, insurance, international sales)
Source: 26 U.S. Code § 1362, Instructions for Form 2553
Become A Corporation
Should I elect IRS subchapter S treatment?●Do you make more than an employee would in your same
position?
●What are your W-2 wages without your business?
Become A Corporation
How do I file an S Corp election?●File a Form 2553 Election by a Small Business Corporation.
●Set up payroll for your corporation.
Become A Corporation
When should I file an S Corp election?●Year 1: File the election within 75 days of receiving an EIN.
●Year 2+: File the election form by March 15th of the following year.
Prepare Taxes Like A Corporation
Prepare Taxes Like A Corporation
Quarterly S Corporation Tax Filings●Payroll tax filings: 941
Prepare Taxes Like A Corporation
Annual S Corporation Tax Filings●S corporation tax return: 1120S
●Shareholder’s share of income: Schedule K-1
●Payroll tax filings: 940
Prepare Taxes Like A Corporation
Personal Tax Filings●Schedule K-1 earnings show up on your Schedule E.
●When applicable, Form 1040-ES estimates quarterly tax payments.
Save Taxes Like A Corporation
Save Taxes Like A Corporation
Scenario 1: Full-time self-employed, single-member LLC
●Company net income: $120,000
●Annual wages: $75,000
●Shareholder income: $45,000
Save Taxes Like A Corporation
Scenario 1: Full-time self-employed, single-member LLC
●Income Tax Bracket: 25%
●S Corporation - Eliminates SE Tax on distributions up to ~$120,000
●Tax savings: $6885
* Single-member LLC, married filing jointly
Save Taxes Like A Corporation
Scenario 2: Part-time consulting●Consulting income: $40,000
●W2 income: $75,000
●Shareholder income: $40,000
Save Taxes Like A Corporation
Scenario 2: Part-time consulting●SE Tax Rate: 15.3%
●S Corporation Tax Rate: Eliminates SE Tax on distributions up to ~$120,000
●Tax savings: $6120
* Married filing jointly, $60,000 AGI
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