Top 10 Tax Strategies for S Corporations: What You Should Know

Do you ever find yourself envious of your working pals during tax season as a self-employed person?

Having your firm requires a greater degree of record-keeping for tax purposes. It’s easy to envy folks who merely have to input income from a W-2 form when you’re rummaging through boxes of business receipts.

However, as a self-employed individual, you are entitled to tax savings that your employed colleagues are not.

Employees, for example, can deduct some expenditures if they exceed 2% of their adjusted gross income.

You may deduct business expenditures straight now – and the deductions even cut your social security and Medicare taxes, which you pay as self-employment tax.

These self-employed tax suggestions will help you make tax season less stressful and take advantage of some of the tax advantages of working for yourself:

Strategy #1: S Corporations Should Reduce Owner’s Salary

In many circumstances, you may save thousands of dollars on payroll taxes for the S corporation owner’s compensation.

Too many owners/employees pay themselves excessively large salaries, resulting in thousands of dollars in a payroll tax overpayment.

Estimated Tax Tip Savings: Depending on your own salary and profit distribution levels, we’re generally seeing scenarios where the S corporation owner can lawfully reduce personal payroll taxes by $8,000-$20,000 over the next year.

Strategy #2: S Corporations Should Be Deducted Of The Owner Premiums for Insurance

The owner’s health insurance policy is established by the S corporations. The owner’s W-2 taxable wages include the health insurance premiums. Finally, if the owner is eligible for the self-employed health insurance deduction, it is claimed on page 1 of 1040.

Strategy #3: Employ Your Child           

The S corporation owner must pay income taxes on the child’s salary, but the savings are offset by a reduction in the family’s income taxes. In 2022, each kid can earn at least $12,950 without paying federal income taxes.

Strategy #4: Before Turning Your House Into A Rental Property, Sell It To Your S Corporation.

When a homeowner intends on transforming their home into a rental property, they could save a great deal of money by first selling the house to their S corporation.

The home-sale exception of $250,000 gain ($500,000 if married) allows the owner to avoid taxes on the sale. Furthermore, you raise the depreciable basis of the rental property, allowing for bigger depreciation deductions.

Strategy #5: Home Office Expenses Reimbursement

When the owner of an S corporation works from home, the corporation may compensate him or her for the expenditures. This is a tax-free income for the owner and a deductible for the corporation. On your corporation tax return, you can deduct this as “Office Expenses.”

Strategy #6: Rent Out Your Residence to Your S Corporation

An S corporation owner can rent out their whole house to the S corporation for 14 days or less over the year and receive significant tax benefits. The corporation can deduct the rent, and the owner can realize this revenue tax-free.

Strategy #7:Depreciation Expenses Are Reimbursable

When the asset is used in the company, the S corporation can compensate the owner for depreciation charges (as well as Section 179 expenses) connected to the business use of a car and home office. This is a tax break for the company as well as tax-free income for the owner. You may deduct this as “Employee Reimbursement.” 

Strategy #8: Vehicle Expenses Are Reimbursable

The combination of a heavy truck with a home office results in significant tax savings. Rapid deductions are produced by heavy vehicles. The home office that qualifies as a major office avoids commute kilometers, which can significantly boost the percentage of cars used for work.

Because tax law classifies such vehicles as transportation equipment rather than passenger automobiles, new and pre-owned “heavy” SUVs, trucks, and vans are free from the dreaded luxury auto depreciation restrictions. As a result, heavier trucks may be qualified for

  1. the Section 179 tax break (subject to a $25,000 cap for SUVs)
  2. 50 percent extra depreciation in the first year (for new automobiles), and
  3. MACRS depreciation has been accelerated.

More than half. Heavy vehicles are classified as “listed property” under tax legislation, which means you must utilize the vehicle for business purposes more than 50% of the time to qualify for the above-mentioned tax advantages. Otherwise, you must utilize the straight-line technique to depreciate the business-use portion of the vehicle’s cost, which is inconvenient because it takes six tax years to fully depreciate that cost.

Strategy #9: Travel Expenses Are Reimbursable

When an S corporation owner incurs business-related travel expenditures, it is critical that the owner request reimbursement from the corporation. The owner must file an expense report and be compensated for the corporation to deduct these expenditures.

Strategy #10: Expenses for a Cell Phone

When an S firm delivers a smartphone or other telecommunications device to an employee

It is considered a working condition fringe benefit that is excludable from income if it is used largely for non-compensatory business purposes.

The company can compensate the employee for the whole cost of phone charges (including personal usage) and deduct this amount on the corporate tax return. The employee receives a tax-free income as a result of the reimbursement.

Wrapping It Up

Did you make money through a trade or business? If this is the case, you are classified as a self-employed taxpayer. Furthermore, if your net self-employment earnings were $400 or more, you must submit an income tax return.

Is this one of your side hustle? Take charge of your taxes and claim every credit and deduction you are entitled to. Please file with us.

Do you have questions regarding small company tax deductions or other tax issues? Rely on our team of small company certified tax specialists to get your taxes done correctly and keep your business running smoothly. Learn how BASC can assist you with your small company taxes.

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