I'm in good Company...
June 8, 2010 1:06 PM   Subscribe

I am now the proud owner of a business. What kind of tax-y advantages are available to the president of an S-Corp?

I have talked to a few people about this, and heard some interesting things:

1) Health insurance is a lot cheaper for your family if you get it through your company. True?

2) You can rent your car to yourself. What? Really? Why? And how does that benefit you?

3) Someone told me "Don't make your wife vice-president of the company, make her the secretary. That way, if you're out of town, she can sign paperwork for the company." Does this make sense?

So...aside from those random bits, what are other things that I can do with my new S-Corp to save money? I know I am in control of when I pay myself, and how much. I know that I will be paying quarterly taxes. Are there any other tricks or tips that I don't know about that I can use to save money with this new endeavor? Also, WHERE CAN I GO TO LEARN MORE ABOUT THIS STUFF? I've never owned a business before. Just bought QuickBooks Pro, and all accounting will be done through that. What am I missing out on?
posted by Spyder's Game to Work & Money (12 answers total) 6 users marked this as a favorite
We could give you more specific business information if we knew what type of business you've started and what state you're in.
posted by crankylex at 1:11 PM on June 8, 2010


A CPA. It's a tax-deductible expense. (As would be Incorporating for Dummies.)

But, seriously, an initial consultation with a CPA is going to give you a head-start, tailored to your line of business and state law, and give you the basis to pick through the anecdotage and find out more on your own.
posted by holgate at 1:15 PM on June 8, 2010

Definitely get a CPA. And probably start talking to a lawyer too. Not only are both going to be expensible, but both can save you orders of magnitude more in money, time, and hassle than you could wind up spending if you get some of these things wrong.

Also, start talking to your local small business development office. They're going to be chock full not only of useful information, but of people who are doing what you're doing, i.e. running a small business. This will be good not only for the mentoring and other such networking, but for business opportunities. Seriously, get your ass over there last week.
posted by valkyryn at 1:22 PM on June 8, 2010

Agree on the CPA. Ours has been a godsend to us and saved us time, money, and aggravation. Ours also has a side business that's in the same industry, which has also helped tremendously. He is extremely generous with advice. Every year when we pay him, we always feel that we've purchased a huge bargain, even though his rates are not cheap!
posted by raisingsand at 1:24 PM on June 8, 2010

Nthing get a CPA. You will want one you can trust, especially as it relates to the types of questions you're asking. I've own several businesses over the years (two S-Corps previously and one LLC now) and depending on how you've set up your S-Corp there are a variety of different advantages / disadvantages that may vary depending on the state you're located in.

In general terms, anything that is a legitimate business expense (be careful, the IRS is auditing more often these days) is tax deductible. This includes benefits like health insurance, your vehicle (might be easier/better to take a standard deduction on mileage rather than have the business own the care), office equipment, software (like Quickbooks), etc. Of course as a corporation you end up having your personal salary taxed twice (once as company revenue and once as personal income) however there are ways to minimize your exposure to that issue, especially with a honest accountant.

Beyond that, a few words of advice:

1. Be careful who you allow to write checks or sign anything for your company, even if it is your wife.

2. Don't try to do anything shady or tricky with your taxes. Yes, even if your accountant tells you you'll never get caught. There are plenty of legitimate deductions and the risks just aren't worth it.

3. Only pay as much quarterly taxes as you need to, but make sure its enough. As a small business cash flow is always a problem. And there is nothing worse than getting a big tax bill at the end of the year (especially with penalties).

4. Health insurance is going to be difficult for you to get on your own and isn't likely to be less expensive. As a small business you'll likely have to go through your chamber or commerce or a trade association in order to be able to buy into a group plan. Also, if you are eligible to buy into your wife's health insurance then your health insurance expense may not be tax deductible. Talk to your CPA.

5. From time to time, cash flow will be tight and you won't be able to pay yourself. Make sure you save up a rainy day fund for when that happens. 'Cause it will happen.

Good luck!
posted by tundro at 1:36 PM on June 8, 2010

Response by poster: Hey all! Sorry I didn't elaborate. I *do* have a CPA, and will be meeting with him next week to go over a lot of stuff. I just need to know WHAT to ask, in case there are things he doesn't bring up. I just realized yesterday (and confirmed) that I have to set up a business checking account for the new money to go through. Duh, I know, but I'm so new to this that it didn't even occur to me. Also, I'm guessing I should get a company credit card for all business purchases, right? Thanks for all the suggestions, keep 'em coming!
posted by Spyder's Game at 1:41 PM on June 8, 2010

1. Only if you buy it through a group plan of some variety. If you're putting other people on the payroll and offering them health insurance, you can get it the same way. Otherwise, you get a tax benefit for your health insurance, but it isn't actually cheaper. But it doesn't have to be purchased through the company that way.

2. Don't do this. Deduct mileage. Keep records. You may have to issue yourself reimbursement checks. Ask your CPA.

3. Depending on what paperwork you want her to be able to sign, chances are good you can designate her as someone who can sign things like checks, etc, no matter what her job title.

And gah, as an accountant, don't do your own books unless you've had training as a bookkeeper. Quickbooks can do a lot of stuff. It can also do a lot of stuff wrong that will take whoever does your taxes tons of time--and therefore tons of your money--to rectify. If you must do your own books, ask your CPA (once you have one) to recommend someone to train you how to do it. Or to do the training themselves.

You need a CPA, either way. As an S-corp owner, you need to be paying yourself salary, among other things, and I can almost guarantee you that you don't know how to determine what's a reasonable salary, and that can be the difference between paying thousands of dollars too much in taxes... or thousands of dollars in penalties once they find out you haven't been paying yourself enough salary. The CPA is cheaper. Believe me.
posted by gracedissolved at 1:42 PM on June 8, 2010

Response by poster: @ crankylex- Sorry, this is a post production (TV and video) business based in Los Angeles. I am the only employee, and became incorporated because my CPA (and many other editor friends) said it would save me a bundle of money.
posted by Spyder's Game at 1:43 PM on June 8, 2010

Bad timing! Just between preview and posting, you reply. :) Given that, you don't need a business credit card unless you want the debt. Ask your CPA if you want the debt. They know more about what you're doing than we do. You can just get a debit card. Or just write checks. Depending on how your books get done--like I said, it may not really be a good idea to do it yourself, ask your CPA--there may be some way which is markedly cheaper. (At my last job doing this, we had such trouble tracking/reconciling debit card transactions that we vastly preferred checks and credit cards. But someone who does it differently, as I tried and failed to get my firm to do, might not have that trouble.)

So basically, just walk into the CPA's office and be like, "Hi! I have a business. This is what kind of business I have. Here is all my incorporation paperwork. What now?"

That's your best bet. A good one will hold your hand the whole way.
posted by gracedissolved at 1:45 PM on June 8, 2010

Wow. Um. Where to begin...

You're going to want to talk to a CPA who should be able to help you out with some of the finer tax advantage points.

As an S-Corp, you can actually be an employee of your own company. This means that you can pay yourself as a W-2 employee, with your income taxes withheld appropriately. Your business' profits will still "flow through" to you personally and they'll be reflected on your personal returns, and you'll be responsible for the income tax associated with them, but having the W-2 take things off the top helps avoid self-employment tax and certain other issues.

As such, you can issue profit distributions to yourself, wherein basically the company gives you (the person) chunks of the profit. Since the company's profits flow-through for tax purposes anyway, this activity is considered tax-free itself; you pay the income tax for the *business* receiving the money, but for you receiving it from the business, it's considered one in the same.

You can't simply pay yourself through profit distributions though. I've heard you typically need a "reasonable standard of living" income backing things in order to make those payments. Those payments will avoid the entitlement taxes like Medicare and Medicaid and social security, which is why you can't pay yourself with them entirely.

Health insurance isn't automatically cheaper. You can form a small group policy, but it'll only be as cheap as your group allows. You can find another business group or organization that lets you pool with their group to drive costs down, however.

You can lease the car to you if it's bought/registered by the business and such, and there are tax implications there, but there are also benefits for writing off your vehicle's usage as "business use" if you file an itemized deduction.

Seriously, talk to a CPA. They will help you out and consult for cheap/near-free.
posted by disillusioned at 1:56 PM on June 8, 2010

Oh hey, on preview, good. :-)
posted by disillusioned at 1:57 PM on June 8, 2010

Sorry, but owners of S-Corps do not get to deduct their own health insurance premiums, only for employees. If you take the premiums as an expense to the corporation, you'll have to rreport it as extra income on your W2, so you lose either way. I've been screwed by this for many years now.

Yes, you can take a car deduction, if you have a legit reason for the business to own a car (you have to drive to see clients, for instance). My business didn't, so I was never able to do this either.

As disillusioned mentioned above, you as long as you take a "reasonable" salary, you can take excess profit, if there is any, as a dividend distribution from the company with no tax consequences (unlike a C corp, where the corp would be taxed on the profits, and you personally would be taxed again on any distributions to you). This is a major advantage of an S corp.

Best of luck on your new venture!
posted by JohnYaYa at 6:49 AM on June 9, 2010

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