A Tampa Accountant who has worked with thousands of business owners reviews the pros/cons and common questions surrounding S-Corps!

8 Most commonly asked questions related to S-Corps:
What is an S-Corp and how does it differ from an LLC?
What are the main advantages of choosing an S-Corp structure?
When does it make financial sense to elect S-Corp status for my business?
Are there any restrictions on operating as an S-Corp in certain industries?
How does an S-Corp affect my 199-A deduction?
What are the costs involved in setting up and maintaining an S-Corp?
Is it advisable to seek professional advice before electing S-Corp status?
How can I learn more about S-Corps and their suitability for my business?
Are you seeking help creating your S-Corp or wondering if you should convert your LLC to one? Contact us for a free consultation with one of our Tampa Accountants to review if an S-Corp is the right entity for you!
1. What is an S-Corp and how does it differ from an LLC?
An S-Corp is a tax election made by a corporation, Partnership, or single-member LLC (via form 2553) with the IRS, offering tax benefits and operational advantages for small business owners. While the name remains the same with the state, it changes how the business is taxed. The key difference lies in taxation:
LLC: Provides liability protection but doesn't offer tax savings. Profits and losses pass through to the owners' personal income tax returns.
S-Corp: Avoids double taxation on corporate income. Profits and losses are passed through to shareholders, but self-employment tax is only applied to salaries, not the entire net income, resulting in significant tax savings.
Important note: not all states recognize S-Corps which just means in their eyes, you're still just an LLC. This means you might not need extra steps when registering/updating your business on your secretary of state website or updating your tax filings. Every state is different so please review your state's Department of Revenue to be certain.
Consult with a Tampa Accountant today with our team at Taxes Tampa if you're unsure about whether or not an S-Corporation makes sense for you and your business.
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2. What are the main advantages of choosing an S-Corp structure?
S-Corps provide several benefits:
Tax Savings: The most significant benefit is the reduction in self-employment tax (Social Security and Medicare). Owners only pay self-employment tax on their salary (W2), not the entire business profit. The opposite is true with single-member LLCs.
Asset Protection: Like LLCs, S-Corps protect personal assets from business liabilities.
Retirement Planning: S-Corp owners can establish Solo 401(k)s, allowing for higher contribution limits than traditional IRAs.
Corporate Credit Building: S-Corps can build business credit separately from personal credit, making it easier to obtain loans and financing.
Reduced Audit Risk: Statistically, S-Corps are less likely to be audited compared to LLCs or sole proprietorships.
Consult with a Tampa Accountant today at our team at Taxes Tampa if you need help deciding whether or not you're ready for an S-Corporation.

3. When does it make financial sense to elect S-Corp status for my business?
It's generally recommended to consider S-Corp status when your business generates a net income of around $40,000 or more. This is because the tax savings from reduced self-employment tax outweigh the additional costs associated with maintaining an S-Corp, such as payroll processing and filing requirements.
The difference between leaving your LLC as a sole proprietorship and converting to an S-Corporation can mean thousands and thousands of dollars in taxes. For simplicity, below are a few figures based on net earnings, and the taxes paid by both types of entities so you can see when it's optimal to convert.
Net Earnings of $25,000: LLC pays $4,300, S-Corp pays $900 ($4k difference)
Net Earnings of $50,000: LLC pays $10k, S-Corp pays $3k ($7k difference)
Net Earnings of $100,000: LLC pays $24k, S-Corp pays $11k ($13k difference)
As you can see, the more you make, the higher the difference in taxes paid vs taxes saved if you remain a sole proprietorship. This is because of 2 things: (1) The IRS incentivizes becoming an S-Corporation so that shareholders get on a reasonable/formal salary (think W2), (2) Second, sole-proprietorships were more designed for hobby income vs trades and businesses. Once you're netting over $25k, you start leaving money on the table by not converting!
Contact our Accountants in Tampa today to help you figure out and navigate the ins and outs of payroll, S-Corps, and converting your entity! Reach out to us to get a free consultation with a Tampa Accountant to address any accounting questions that you may have to make sure you're optimizing for tax time!
4. Are there any restrictions on operating as an S-Corp in certain industries?
Some industries, especially licensed professions like real estate, insurance, or healthcare, may have specific requirements or restrictions regarding S-Corp operation. It's crucial to consult with your state licensing board and legal counsel to ensure compliance. Please note that some states also don't fully provide the same tax benefits as others so tax forecasting should be done to see if the benefits of an S-Corp would exist if you live in a state such as New Hampshire as there are supplementary taxes that may diminish the S-Corp's overall tax savings/value.
5. How does an S-Corp affect my 199-A deduction?
The 199-A deduction allows for a 20% deduction on pass-through income. S-Corps can maximize this deduction by strategically allocating income between salary and dividends, minimizing self-employment tax while maximizing the 199-A benefit.
6. What are the costs involved in setting up and maintaining an S-Corp?
Setup Costs: Range from $200 to $1,000, depending on legal and filing fees.
Ongoing Costs: Include annual tax filings, payroll processing, and potential accounting fees, estimated between $1,500 to $2,000 annually.
7. Is it advisable to seek professional advice before electing S-Corp status?
Absolutely. Consulting with a tax advisor or attorney experienced in business structuring is essential to determine if an S-Corp is the right fit for your business. They can assess your financial situation, industry regulations, and long-term goals to guide you in making the best decision.
8. How can I learn more about S-Corps and their suitability for my business?
Various resources are available to learn more:
Consult with a Tax Professional: Seek guidance from a CPA, tax attorney, or enrolled agent specializing in business taxation.
Online Resources: Websites like the IRS and Small Business Administration (SBA) provide information on S-Corps.
Business Education Platforms: Consider online courses or workshops offered by reputable organizations that cover business structuring and taxation.

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