More entrepreneurs are choosing to form S Corps than ever before. In fact, 54% of private companies are pass-through companies, either LLCs, partnerships or S Corps. According to the S Corporation Association of America, pass through entities contribute more to the economy than even C Corporations. The S Corp is not going anywhere in America, and the tax laws are not likely to change.
Play it safe, but smart as a business owner when deciding how much your payroll should be. If your accountant is trying to keep your payroll too high and telling you the benefits aren’t worth the risk, question him and get a second opinion. There have been hundreds of IRS cases with business owners receiving little to nothing in payroll, but you need not be discouraged and playing it too safe could mean paying far too much in FICA taxes.
In addition, make sure you don’t blindly jump into making an S-Corp election, as there are several instances in which making such an election is either not allowable, or ill advised given your company’s long term outlook (i.e. plans to seek venture capital down the road). Make sure you have a thorough discussion with your CPA to weigh all the benefits and downsides to the S-Corp election, as a careful analysis should be done prior to any decisions being made.
For more information on FICA or S Corporation taxes visit our Tax Services.
Written by Curt Mastio CPA of Founder’s CPA