Amplified: 10 Tax Strategies for S Corporations: What, How, Where
Parts of this article are published with permission from Bradford Tax Institute, © 2021 Daniel Morris, Morris + D’Angelo
Question
In last week’s article “10 Tax Strategies for Schedule C Taxpayers: What, How, and Where“, you discovered 10 Tax-Saving Strategies for Schedule C taxpayers, and you also know exactly where on and in the tax return you should record these tax breaks.
Do you have a similar resource for S Corporation Tax Strategies?
Answer
We do now, thanks to your question.
In our new PDF titled “10 Tax Strategies for S Corporations: The What, How, and Where”, we provide you with 10 tax-saving strategies that will save you big money. We then show you how the strategies work for you and your corporation and where to record them on your 1120S.
- Reduce the S Corporation Owner’s Wages.
You can cut payroll taxes on the S corporation owner’s salary by thousands of dollars in many cases.Too many owners/employees are paying too high of a salary to themselves, resulting in overpaying payroll taxes by thousands of dollars.
- Deduct the S Corporation Owner’s Health Insurance Premiums.
The S corporation establishes the health insurance plan for the owner. The health insurance premiums are then included on the owner’s W-2 taxable wages. Finally, as long as the owner qualifies for the self-employed health insurance deduction, this is claimed on page 1 of the owner’s 1040. - Employ Your Child to Lower Your Taxable Income.
The S corporation owner must pay payroll taxes on the child’s wages, but the savings come with the family’s decrease in income taxes. Each child can earn up to $12,950 in 2022 without paying any federal income taxes. - Sell Your Home to the Corporation Before Converting it to a Rental Property.
When a homeowner plans on converting their personal residence into a rental property, there are big tax savings by first selling the home to their S corporation.The owner 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 greater depreciation deductions for the property.
- Establish an office in your home and reimburse yourself from the corporation for the expenses.
When the S corporation owner uses a home office, the corporation may reimburse him or her for the expenses. This is a deduction for the corporation and tax-free income to the owner. You may deduct this as “Office Expenses” on the corporate return. - Sell Your Home to the Corporation Before Converting it to a Rental Property.
An S corporation owner may rent their entire home to the S corporation for 14 days or less during the year and get big tax deductions. The corporation can deduct the rent and the owner can realize this income completely free of income tax. - Have the S Corporation Reimburse the Owner for Depreciation Expenses Related to Business Use of a Vehicle and Home Office.
The S corporation can reimburse the owner for depreciation expenses (as well as Section 179 expenses) related to the business use of a vehicle and home office when the asset is used in the business. This is a deduction for the corporation and tax-free income for the owner. You may deduct this as “Reimbursement for Employee Business Expenses”. - Combine the Home Office and a Heavy SUV, Crossover Vehicle, or Pickup Truck to Grab Big Deductions this Year.
There are major tax savings with the heavy vehicle and home-office combo. The heavy vehicle produces quick deductions. The home office that qualifies as a principal office eliminates commuting miles, and such an elimination can dramatically increase the business-use percentage of vehicles. - Reimburse the S Corporation Owner for Travel Expenses.
When the S corporation owner incurs travel expenses in connection with work in the business, it’s imperative the owner seek reimbursement from the corporation. In order for the corporation to deduct these expenses, the owner must submit an expense report and be reimbursed. - Deduct Your Smartphone and Provide Smartphones to your Employees as Tax-Free Fringe Benefits.
When an S corporation provides an employee with a smartphone or similar telecommunications equipment primarily for non-compensatory business reasons, it is considered a working condition fringe benefit that is excludable from income.The corporation can reimburse the employee for the full cost of the phone expenses (including the personal use) can deduct this amount on the corporate tax return. The reimbursement is tax-free income to the employee.
We at Morris + D’Angelo believe that Tax Optimization is one of the most empowering and responsible things you can do to protect your growing financial assets. Tax optimization looks at a multi-year approach to minimizing tax costs. Tax avoidance is integral to tax optimization.
In this article, I shared with you Ten (10) powerful Tax Strategies for Schedule C Taxpayers that you can easily understand and implement. If you need guidance regarding these tax-saving strategies, please contact us at Morris + D’Angelo. This is our Expertise!
Parts of this article are published with permission from Bradford Tax Institute, © 2021 Daniel Morris, Morris + D’Angelo
Daniel Morris
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