S Corporation Strategies to Save You Tax Dollars
July 8th, 2019 at 7:17 AM
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 property.