- Pay Yourself a Reasonable Salary: As an S Corp shareholder, pay yourself a reasonable salary to minimize payroll taxes and take advantage of lower tax rates on distributions. The IRS requires that salaries be reasonable for the services provided to the company.
- Optimize Payroll Tax Liability: By structuring your income efficiently, you can reduce payroll taxes. This involves balancing salary and distributions to optimize tax savings.
- Deduct Business Expenses: S Corps can deduct business expenses such as salaries, wages, and bonuses, which can lead to significant tax savings. Additionally, you may qualify for a 20% deduction on qualified business income under the Tax Cuts and Jobs Act of 2017.
- Leverage Fringe Benefits: S Corps can cover owner-employee health insurance premiums and reimburse business-related expenses, which can be deducted as business expenses, further reducing taxable income.
- Employ Family Members: Hiring family members, such as children, can provide tax benefits. Their salaries can be deducted as business expenses, and they may earn income without paying federal income taxes up to a certain limit.
By implementing these strategies, S Corp owners can optimize their business structure and maximize tax savings, making the S Corp a favorable choice for many small business owners. Consulting with a tax professional is advisable to tailor these strategies to specific business needs and ensure compliance with IRS regulations.