S Corporation Strategies to Save You Tax Dollars - Philadelphia CPA
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S Corporation Strategies to Save You Tax Dollars

S Corporation Strategies to Save You Tax Dollars

Reduce S Corporation Owner’s Wages

 

As the owner of an S Corporation, you can legitimately cut payroll taxes by thousands of dollars by paying yourself a lower salary and allocating the remainder of your income as distributions. However, be sure to make your salary commensurate to what the IRS considers “reasonable compensation.”

 

S Corporation Covers the Owner’s Health Insurance Premiums

 

The S corporation can establish a health insurance plan for the owner-employee who owns more than 2% in one of 2 ways: (1) the S corporation pays the premiums for the owner-employee and family, and (2) the S corporation reimburses the owner-employee for the premiums.

 

Employ Your Child

 

Each of your children can earn up to $12,000 without paying any federal income tax. The S Corporation must pay payroll taxes on your child’s wages; net effect is lower family taxes.

 

Reimbursement of Home Office Expenses

 

When the S corporation reimburses the owner for home office expenses, this reimbursement is tax-free to the owner and a tax deduction for the corporation.

 

Rent Your Home to Your S Corporation

 

An S corporation owner can rent their entire home to the S corporation for up to 14 days per year and get big tax deductions. The S corporation deducts the amount of the rent, and the owner received these funds tax-free.

 

Reimbursement for Vehicle, Cell Phone, Travel, & Depreciation Expenses

 

As an S corporation owner who incurs the above business expenses, these expenses can be submitted to the company and reimbursed—result, tax deductible expense to company; no income to the owner. The expenses must be documented by invoices, etc. In addition, if your home office qualifies as a principal place of business, business-related trips to and from the home office account for business miles.

 

Sell Your Home to Your S Corporation before Converting it to a Rental Property

 

If you plan to convert your personal residence into a rental property, consider first selling it to your S corporation. You can avoid taxes on the sale of with the home-sale exclusion of $250,000 gain ($500,000, if married). In addition, you increase to depreciable basis of the preperty.