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Business Owner's Guide: S Corporations

Updated: Feb 17



Folks are taking control of their lives by becoming business owners, and stewards of their financial freedom! With that they are obligated to the responsibility of understanding crucial business basics if they want to maximize a firm hold on the profits.


Step one in forming your business is understanding the entity structure that best suits your plans now & in the future.


S Corporations

S Corporations are a great option for businesses earning a decent profit and plan to going forward. Unlike a Schedule C, which files on the individual return, the S Corporation does not pay self-employment taxes on net business income. That’s a big deal because the rate of self-employment tax is 15.3%!


Shareholders of a S Corporation are able to distribute a portion of the net profit as shareholder distributions NOT subject to the tax! The portion that ends up being subject this tax is paid out as W-2 wages.


Quick Breakdown

So, a company that makes $100,000 in net business income can expect to pay $15,300 in self-employment taxes right off the top as a Schedule C before income taxes are considered. The same business that operates as a S Corporation may only pay 30-40% of that in wages which are subject to self-employment tax. That means that $60,000 - $70,000 of net income will not be subject to the tax, a savings of thousands!


Cost to Operate

The reason everyone under the sun isn’t a S Corporation is because of the additional costs to operate. First, the business must pay a reasonable compensation to officers, and to do so means quarterly and annual forms requirements. You will file a completely separate tax return in Form 1120S. The entity will be required to obtain an EIN (if it doesn’t already have one), and make the S Corp Election with the Internal Revenue Service. Last, a separate bank account is setup using the EIN of the entity as owner, and often times formal bookkeeping is needed.


Get Professional Help

Instead of becoming overwhelmed this is the perfect opportunity to bring in a Tax & Accounting Professional. I typically look for a net business income of around $35,000 and the future income earnings expectations before I begin to recommend the S Corporation. When growth is expected year over year then the S Corporation usually makes sense at a much earlier stage even when profits in a start-up year are low. While a business who expects to maintain consistent levels that are at or below this amount may be best suited to operate as a Schedule C.


Book a Free Discovery Appointment

See if Rangeview Tax & Accounting is a good fit for you with a Free Discovery Chat! We offer in-person, on-site, and telephone discovery chats. On site chats are typically business with exceptions available under appropriate circumstances for individuals.



Book a Paid Consultation

Our paid consultation is $50 and puts you on the line with a tax professional who will answer questions that you have related to IRS Code, and Tax Strategies. Pay for your consultation, select one of the available appointments, and provide the general topic of discussion or questions that you wish to discuss. If you choose to move forward with our services, we will credit the consultation fee towards a future tax return preparation.


Tax Projections

Stay on top of the upcoming filing season with a tax projection! We will collect various data including current pay stubs, expected business income, and more extraordinary situations like selling a home, rental, or business. From there we annualize the figures and run a mock tax return to get a good idea of an expected tax liability. This gives us a baseline in which we can further advise tax planning strategies that may apply.





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