S-Corporations are the most common forms of small businesses organization today. This is because they can avoid double taxation of standard corporations. Indeed, there are many ways in which S-Corp holders can use to reduce the taxable amount from their earnings. However, this does not apply to everyone. Keep reading for the best ways to get money out of your S-Corp.
Make sure that you charge all of the corporation’s legal business expenses. Also, don’t forget to file the corporation’s expense reports with reimbursement receipts. This applies if you invest in company business or you use personal credit cards to make charges. Unless your expenses are reimbursed, the corporation can’t deduct the costs that you have paid personally.
Have you ever rented anything to the corporation? If you have, then you have to make sure that the charged rents are market-based. And that they are recorded as rational if they get to audit you.
Review your potential fringe benefits from the S-Corporation. You can participate in a solo 401k and other benefits.
If the company owes you a loan, be sure to get the interest since this is income to you.
The IRS requires S-Corp owners to receive a salary from the corporation. This will be subject to payroll taxes, but will bring down your net income and overall decrease your end of year tax liability.
Stockholders loans are not taxable. The IRS is not always happy with this. If abused, they turn out to be an audit trigger. Remember always to record all the loans that you make and that you pay bear market interests which are repayable after some time. Also, don’t forget that you’re being taxed twice on the investment.
What you’re left with after all the expenses is the corporation’s profit. This profit can be shared among the shareholders when earned. It’s not when the money has been distributed that taxation is applied but when the benefits are earned.
Learn More About S-Corp
The S-Corporation form of organization is multiplying as more business owners now understand its benefits. However, you should be aware of the many traps set for the reckless.
Please contact us if you have any questions regarding S-Corporations.