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Legal Entity Tax Strategy: Schedule C to S-Corporation
Treating your LLC as an S-Corporation for tax purposes
If you are a sole-proprietor operating with an LLC, you can elect to be treated as an S-corporation for tax purposes. By moving your operations off your individual tax return, the 15% self-employment tax gets eliminated on earnings up to $128,400 and 2.9% for income greater than $128,400.
As an S-corporation shareholder, the IRS requires you to receive reasonable compensation (RC) from the S-corp. Your savings calculation depends on the difference between RC and income up to $128,400 times 15% and 2.9% on difference above $128,400.
The savings for this tax planning strategy will range from $3000 up to $15000 and more. Hiring the help of an experienced tax expert can make an enormous difference.
How much money is your CPA saving you on tax payments this year?
Many elements of tax planning are quite simple, but it’s always worth speaking with a CFO who can offer you additional guidance on how to work within the tax system successfully.