Tips for S Corp Owners to Save a Lot of Money Are you sick and weary of giving the government astronomical sums of money? Any aspect of life that involves strategy, but saving money in particular, is crucial. When it comes to reducing taxes as an S-Corp owner, there are many various strategies that may be implemented; each one is crucial to keeping as much money as you can.
There are numerous ways to save money when it comes to your taxes. Ten tried-and-true methods are listed below that will lower your tax burden and keep more money in your pocket:
1. Pay for S Corporation Owners Less
You can earn more money as the shareholder of a S business by taking home a smaller monthly salary and distributing the excess cash flow. You shouldn’t considerably reduce your income below what the IRS deems “fair compensation” because you are required to pay yourself a “reasonable compensation” with the IRS.
2. The Owner’s Health Insurance Premiums Are Paid by S Corporation
The S corporation can create a health insurance plan for the owner-employee who owns more than 2% in one of two methods as another S Corp owner tax strategy: either 2) the S corporation reimburses the owner-employee for the premiums, or 1) the S corporation pays the premiums for the owner-employee and family.
3. Hire your child
Employing their kids is a terrific alternative for parents looking to reduce their tax obligations. Parents who hire their children are eligible for tax advantages, some of which can be very large. Additionally, kids who work develop crucial life skills that will benefit them in the future. On a child’s paycheck, the S corporation owner must pay payroll tax, but the family pays less in income tax as a result. Up to $12,000 can be earned by each child without incurring federal income taxes.
4. Before making your house a rental property, sell it to your S corporation.
There are several options you can use as S Corp tax solutions when it comes time to sell your house. You have three options for selling it: to a private individual, an investor, or your business. Each option has advantages and disadvantages, but for many people, selling it to your company may be the best choice. If you want to turn your house into a rental, you can also think about having your S corporation buy it. On your tax return, you can deduct the sale of $250,000 ($500,000 if you’re married) from your profits. If you own depreciated rental property, you can also benefit from accelerated depreciation constraints.
5. Expense reimbursement for home offices
The Internal Revenue Service states that a worker may be eligible for a home-office deduction if the area is used solely and regularly for work and is not used in any other way as part of a S Corp tax scheme. This comprises a room, workstation, or shared area in the house that is utilized as an office. Employees can also write off costs like mortgage interest, property taxes, rent, utilities, insurance, and repairs if they use their house as a place of business.
6. Let Your S Corporation Rent Your House
Many S corp owners are using a tax tactic called “renting their home to their S corporations for specified days” to lower their taxable income. This entails establishing a rental contract between the company and the property owners, which may result in large tax savings. This works because the IRS permits landlords to deduct the rent from their taxable income. They do this by charging their businesses.
7. Depreciation expense settlement
An S company can pay back its owner for depreciation costs (including Section 179 costs) associated to using a vehicle, a home office, or other assets for business purposes. This deduction results in taxable income for the company and tax-free compensation for the S corporation owner.
8. Reimbursement for transportation costs
A qualifying “heavy” commercial vehicle may be eligible for a sizeable Section 179 first-year depreciation discount. Additionally, if your home office qualifies as a principal place of business, travel to and from it for work-related purposes will accrue business miles.
9. Payment of Travel Expenses
An S corporation owner must report and get reimbursement from the corporation for all business-related travel expenses. Alternative arrangements nearly invariably have detrimental tax effects.
10. Mobile Phone Cost
Let’s say the S corporation gives a worker a mobile phone or another type of communication device to use for non-compensatory business purposes. In that situation, this is regarded as a fringe benefit not included in salaries related to working conditions. The S corporation should be able to deduct the cost from the reimbursement amount (which should include personal use) on the corporate return. The employee receives the payback as tax-free income.
In conclusion, dealing with a S corporation has a lot of advantages. You can save a ton of money on taxes by using the methods described in this article.
Start looking into the pros and cons of incorporation right away! A tax advisor from our outstanding team should be consulted before implementing any of these tactics.
Although we want you to reduce your tax liability as much as possible, we also want you to file your taxes legally. Call us at 281-440-6279 to set up an appointment or to request a consultation if you’d like to learn more about these tax-saving options for S Corp owners.