How To Lower S-corporation Taxes?
10 Proven Strategies To Lower S-corporation Taxes
We’ve got ten great possibilities for you if you own an S-corporation and are looking for ways to slash your taxes. You have instant access to all of the information and thousands of others when you contact our office.
1. 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 taking the rest of your income as distributions. But you need to make sure that you don’t drop your salary below what the IRS considers “reasonable compensation.”
2. Owner’s Health Insurance Premiums Covered By S Corporation
The S corporation can establish a health insurance plan for the owner-employee who owns more than 2 percent in one of two ways: 1) the S corporation reimburses the owner-employee for the premiums, or 2) the S Corporation pays the dividends for the owner-employee and family.
3. Employ Your Child
Each child can earn up to $12,000 without paying any federal income taxes. The S corporation owner must pay payroll taxes on the child’s wages, but the family enjoys a decrease in income taxes.
4. Before Converting Your Home To A Rental Property Sell It To Your S Corporation
Consider first selling the home to your S Corporation, if you are planning to convert your residence into a rental property. You can avoid taxes on the sale with the home-sale exclusion of $250,000 gain ($500,000 if married). Additionally, you increase the rental property’s depreciable basis, which provides for higher depreciation deductions.
5. Reimbursement of Home-Office Expenses
Reimbursement deduction for the S corporation and tax-free to the owner, when the S corporation reimburses the owner for home-office expenses.
6. To Your S Corporation Rent Your Home
The S Corporation deducts the full amount of the rent, and the owner realizes the income utterly free of income tax. An S corporation owner can rent his or her entire home to the S corporation for up to 14 days per year and get significant tax deductions.
7. Reimbursement of Depreciation Expenses
The S corporation can reimburse the S corporation owner for depreciation expenses (as well as Section 179 expenses) related to a home office, other assets, and business use of a vehicle. This is a deduction for the S corporation and tax-free income for the owner.
8. Reimbursement of Vehicle Expenses
According to Section 179, first-year depreciation deducted for a qualifying “heavy” vehicle used for business can produce a substantial deduction. Plus, if your home office qualifies as a principal place of business, business-related trips to and from that home office rack up business miles.
9. Reimbursement of Travel Expenses
An S corporation owner who incurs business-related travel expenses must submit an expense report and be reimbursed by the S corporation; other arrangements have disastrous tax consequences.
10. Expenses on Cell Phone
This considered as a working condition fringe benefit that is excludable from income when an S corporation provides an employee with a smartphone or similar telecommunications equipment primarily for non-compensatory business reasons. The reimburse is tax-free income to the employee. The S corporation can reimburse the employee for the full cost of the phone expenses (including personal use) and deduct this amount on the corporate tax return.