If you’re a small business owner, you might be thinking about forming an S-corporation. Basically, an S-corp is a type of corporation that comes with some great tax benefits for its owners.
See why businesses are making these smart tax moves. 6 Ways an S-Corp Keeps More Money in Your Pocket.
1. Pass-Through Taxation
One of the main benefits of an S-corp is that it is a pass-through entity. This means that the business itself does not pay federal income taxes. Instead, the profits and losses of the business are passed through to the owners’ personal tax returns. This can help reduce your tax liability and save you money on taxes.
2. Self-Employment Taxes
As a business owner, you are required to pay self-employment taxes on your income. However, with an S-corp, you can pay yourself a salary and take the rest of your income as a distribution. The salary portion is subject to self-employment taxes, but the distribution portion is not. This can help reduce your self-employment tax liability and save you money.
3. Deductible Business Expenses
As an S-corp owner, you can deduct your business expenses on your personal tax return. This includes expenses such as office rent, supplies, and equipment. By deducting these expenses, you can reduce your taxable income and save money on taxes.
4. Health Insurance Premiums
If you are a shareholder-employee of an S-corp, you can deduct your health insurance premiums as a business expense. This can help reduce your taxable income and save you money on taxes.
5. Retirement Contributions
As an S-corp owner, you can make contributions to a retirement plan, such as a 401(k) or SEP-IRA. These contributions are tax-deductible and can help reduce your taxable income and save you money on taxes.
6. Estate Planning
An S-corp can also offer estate planning benefits. By transferring shares of the business to your heirs, you can reduce the value of your estate and potentially save on estate taxes.
So, to wrap it up, forming an S-corporation can offer you a range of tax benefits that really add up to savings. We’re talking about pass-through taxation, lower self-employment taxes, deductible business expenses, health insurance premium deductions, tax-deductible retirement contributions, and even estate planning perks. Just make sure you chat with a tax professional to see if an S-corp is the best move for your business.