Have Tax Questions? Ask a Tax Expert for Answers ASAP
Hello! I am a CPA here to assist you with your tax questions. My goal is to provide you with excellent service today.
How are you today?
1) Yes, an S Corp files its own return. It files form 1120-S. This is a corporate tax return, but shifts the tax to the shareholders.
2) Yes, the profits of the S Corp are shifted to the shareholder/owner - similar to an LLC
3) With the profits you have to pay yourself a "reasonable" salary. The rule of thumb is that 60% of your earnings are wages and 40% are dividends. Therefore, you're only paying employment taxes on the 60% that is considered earnings.
In the LLC, ALL of the profits are subject to employment taxes.
4. S corps have all the same business deduction availability as any other business format
5) The advantages of the S corp is that not all of your earnings is subject to employment taxes
6) You are exactly right about the double taxation of a C Corp. The C Corp pays income tax on the earnings, then the owner pays tax again on dividends. One way to side-step this is to have salary from the C Corp (which you will pay employment taxes on) but on the salary received, the corp doesn't pay income tax on that because they deduct the wages.
7) Any net earnings of a C Corp are not subject to employment taxes. Only designated salaries given by the C Corp are subject to employment taxes
8) The deduction availability for C Corp and LLC are very similar. You can deduct any ordinary and necessary expense for both LLC and C Corp
9) For the higher grossing company, the C corp advantages will be that employment taxes would not be levied on the profits. You can shift some of the earnings to the owner through wages, which are fully deductible to the corporation
with regard to your answer to #3, do the 60% wages taken weekly / monthly have to have the employment taxes deducted with each payment, like the employees / staff, or does the owner just pay quarterly estimated taxes? When can the dividends be taken by the shareholder/owner, only taken at the end of the year or more frequently?
Whenever the owner is paid the wage, you would withhold the tax because you will file the same employment tax returns (940, 941 etc)
The owner can take the dividends whenever they want throughout the year.
Are life ins premiums paid by the company, with the owner the insured but the company the owner of the policy and the beneficiary, a business expense or are they considered wages or dividens.
Life insurance premiums are considered wages, but are fully deductible to the corp
thank you for your excellent help
You're welcome. If you would, please take a moment to rate my response as "Excellent' so that I may receive credit for assisting you today