S corporation tax planning ideas that save taxes!

By Jeffrey Brooks, CPA, CFP, MBA for Jbrooks Wealth Advisors, PC, a Professional CPA and CFP Firm jeff@jbrookswa.com 602-687-9900 x101

This information is modified from a tax seminar that I presented to a few of our CPA firm clients who have S Corporations. This information should not be relied on since each client’s situation is different!

PART 1: Tax Savings and accumulating more wealth
1. What is the biggest cost of being a sole proprietorship or employee? Payroll taxes and higher IRS audit scrutiny. How do we reduce self-employment taxes? Self-Employment taxes are about 15% of your net taxable income. For instance, if you own a sole proprietorship business and you have $100K of taxable income ($120,000 in revenue and $20,000 in expenses), you will immediately owe $15,000 in payroll taxes PLUS the income tax on it. If you are in a high tax bracket of 35%, you are in effect paying 50% in income taxes. As an S corporation, you have to pay some payroll taxes but not 15% of $100,000.
2. Family member compensation instead of gifting. No income tax withholding on first $5,700 of income. What are the requirements? Adults and children. What support do you need? Time records similar to what employees in a business must submit to employers.
3. Restaurant research. There is a debate whether restaurant meals are 50% or 100% tax deductible. As an employee (instead of corporate shareholder) restaurant meals will create a “red flag” as an itemized deduction and may not be deductible due to A.M.T. limitations. What must you keep? Restaurant evaluation forms.
4. Marketing for new consulting clients-how to write off meals and entertainment, party? We will discuss later.
5. Automobile expenses-how your vehicle only costs you 65 cents on the dollar? We will discuss later.
6. Travel-how can you get a tax deduction?
7. Office in home expenses. How will you be able to deduct these expenses?
8. How can you keep your payroll low (avoid high self-employment taxes) but get a much larger retirement plan than other people with higher payroll? Solo 401K Plan or SEP-IRA plan. Solo 401K if you are the only employee. If you have other employees then you can take advantage of the SEP-IRA. (Note if you are not putting any money away, what are you going to do when you can no longer work or can’t earn the same amount of income?)
9. How can you write off a rental in the pines? Could this help you avoid IRS claims that you should not deduct all of these expenses because you really were an employee?
10. Write off internet, newspaper, flowers in your home/rental?
11. Can you get a onetime large write off for furniture, fixtures and equipment in your office home or rental?
PART 2: Paying more taxes and depleting your wealth. LANDMINES that can lose your deductions and trigger large income taxes, penalties and high CPA fees
1. Failure to pay enough payroll to you. This now a RED FLAG.
2. Failure to deposit a percent of your dollars received in your bank account to pay the cash out to cover taxes out of your November tax bonus. We need the money in October or November to pay a reasonable salary and payroll taxes.
3. Failure to document, document, document. See UPCOMING HAND OUTS.
4. Failure to focus on taxes when you have a chance to be smart and reduce income taxes by having a tax plan in October or November to lower your taxes for that current year and Instead waiting until the next year to focus on taxes. How much time do you invest in saving taxes? (SEE HAND OUT)


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About Jeffrey Brooks

Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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JBrooks Wealth Advisors, PC.

Certified Public Accountant
Address: 4647 N 32nd Street, Suite B245
Phoenix, Arizona 85018
Phone: 602-292-2009
Email: jeff@jbrookswa.com