What is an S Corp?

An S corp is a type of corporation that is considered a pass-through entity. A pass-through entity means that you, personally, will be taxed on the income the business generates.

Why would I want an S Corp?

An S corp does have some tax benefits. It can result in reduced self-employment (SE) taxes. It does this by assigning the owner/shareholders a reasonable wage, if they work for the company. Your reasonable wage might be lower than the income the company is bringing in. In that case, you wouldn’t be subject to SE tax on all of your income business income, just the wages portion.

That sounds great! How do I get started?

Slow down! This is not a simple DIY project. If you don’t manage it like a proper business, you will get fees, fines, and a lot of other things that you probably won’t like (if you’re currently dealing with these issues, please reach out to us! We offer Tax Resolution services to help people dealing with the IRS for collections, penalty abatement, and liens/levies). You HAVE TO run payroll, file quarterly payroll taxes, and issue the employees of the business a W2 (yourself included).

We know that if you’re bound and determined to do this, you’ll look for the information elsewhere if you don’t find it here. To create an S corp, you can first create an LLC and then file form 2553 to elect S corp taxation status. It’s that simple! Just remember, now you’re subject to: payroll tax liability, Trust Fund Recovery Fees, additional business return filings (1120S), and depending which state you created your S corp in, you could have $800+ in fees annually (California).

As always…

Contact us if you have questions or need help with tax preparation or Tax Resolution. Do you keep getting notices from the IRS? Don’t ignore them! You could be subject to collections before too long. Check out an overview of the collection process here.