Switching Entities Can Save you Thousands

Why Switching to an S Corp Can Save Money on Taxes

If you're a small business owner, you know that taxes can be a major expense. One way to save money on taxes is to switch to an S corporation. An S corporation is a pass-through entity, which means that the income and losses of the business are passed through to the owners' personal tax returns. This can be beneficial if you have other sources of income, such as a job or investments, that put you in a high tax bracket.

Here are some of the benefits of switching to an S Corp:

• Reduced self-employment taxes. If you're a sole proprietor or single-member LLC, you're responsible for paying self-employment taxes on your entire net income. This can be a significant expense, especially if you have a high income. With an S corp, you can pay yourself a reasonable salary and then distribute the rest of your income as dividends. This will reduce your self-employment taxes and save you money.
• More flexibility with retirement savings. As an S corp owner, you can contribute to a Solo 401(k) plan. This type of plan allows you to contribute a significant amount of money to your retirement savings each year. You can also contribute to an IRA, but the contribution limits are lower.
• More flexibility with health insurance. If you're a sole proprietor or single-member LLC, you can't deduct the cost of your health insurance premiums on your taxes. With an S corp, you can deduct the cost of your health insurance premiums, which can save you a significant amount of money.
• More flexibility with business expenses. As an S corp owner, you can deduct a wider range of business expenses on your taxes. This includes things like travel expenses, meals and entertainment expenses, and educational expenses.

If you're considering switching to an S corp, it's important to talk to a tax professional to see if it's the right choice for you. There are some requirements that you must meet in order to qualify for S corporation status, and there are some potential drawbacks to consider. However, for many small business owners, switching to an S corp can be a great way to save money on taxes.

Interested in switching? Contact our office to find out how.