Like a puppy, you just got an S Corp and you are wondering “Now What?” Lots! Most importantly, business owners need to set up payroll accounts and start processing payroll to satisfy the IRS requirement of reasonable salary. That’s not all. There are home office, mileage and SEP IRA considerations too as you transition from LLC land to S Corp world. We discuss all this in our video.
Here is a link to the PowerBore slide deck.

This material is based on content from our website and our book, Taxpayer’s Comprehensive Guide to LLCs and S Corps.

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Hi, my name is Jason Watson with WCG Inc. We’re a tax and consulting firm here in Colorado Springs. Today, we’re going to talk about an S Corp. You might have already done your S Corp election and all that stuff is great, and the question is now what? Right? What comes next? A lot of the material that we discuss in our videos comes from our book and that is available on Amazon Kindle. You can also download a copy on PDF.

Let’s go through an S Corp recap. It’s not an entity. It’s a tax election. We have other videos on that, and you might already be aware of that stuff. For LLC’s, it saves on Social Security and Medicare taxes. That’s your SE tax. For C Corps, it saves on double taxation and as we’ve discovered the S Corp election is done on form 2553.

The question is, now what? Right? We have this shiny new S Corp. What’s our next step? The very first thing that, maybe not the very first thing, but one of the first things you should do, is set up your payroll processing. Whether you do that through Augusto, ADP, you have us do it, you do it through Intuit. However, you want to do that, payroll is payroll though. It’s not just transferring checks from your business account into your individual account.

When we talk about running a salary on you, we are saying you need a W-2. You need to file a 941’s, which is a payroll tax filing due every quarter. All this good stuff. Owner draws, you will still do those things, however, now they’re called shareholder distributions and those are not considered payroll checks. Payroll setup has to be done. You must open up accounts with the IRS and also with your state and perhaps even your local governments as well, depending on the county or the city that you’re in.

Another thing that we find is somewhat confusing to business owners is the mileage, home office, cell phone and internet expenses. Those expenses, if you were an LLC before, not taxed as an S corp, those expenses are generally going to be deducted on your individual tax return, along with your business activities on Schedule C.

However, now, with an S corporation, it’s going to be a little bit different. Now, we’re going to deduct those expenses as employee reimbursements to you. Those expenses are going to be deducted on the business entity tax return and not the individual tax return. The reason why we say this is commonly, we get somebody who we do the business entity return, we do the S Corp tax return, all that’s really great and then they come in with all their individual stuff, their 1040, mortgage interest statements, 1099 dividends, all those things and they’re like, “Hey, I also have mileage I want to deduct for my business” and we can’t do that. We have to go back to the business return and deduct it there and we want to make sure we get that data from you prior to the filing of the business entity tax return.

Moving on. This is another kind of a gotcha. If you are used to maximizing your SEP IRA, that is going to change. If you’re just a normal LLC, without the
S Corp election and you’re making a hundred thousand dollars, net income, you’re Max SEP IRA is $18,587, as you can see there on your screen. If you take this same entity and you have it be taxed as an S Corporation, we’re going to be reducing the max SEP IRA and how we do that or why it’s happening, I should say, is that, let’s say we assume a $40,000 salary paid on the $100,000 Net S Corp income, your max SEP IRA is going to be $10,000.

What do we get this math from? Typically, it’s 25% of your net income or 25% of your W-2. For the LLC, there is some other adjustments in there we have to do. It’s not just a strict 25%, but as you can see there is an $8,500 difference between maximizing your SEP IRA with your garden-variety LLC, versus your LLC being taxed as an S corp.

Continue watching to learn more!
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Thank you!
Warm Regards,
WCG Inc. (formerly Watson CPA Group)
2393 Flying Horse Club Drive
Colorado Springs, CO 80921

719-387-9800 phone
719-345-2100 text message
855-345-9700 fax

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If you’re considering starting a new business, forming an S Corporation (S Corp) can be a smart choice. An S Corp is a type of corporation that elects to pass income, losses, deductions, and credits through to its shareholders for federal tax purposes. This can result in potential tax savings and other benefits for the business owners.

Here are some steps to consider when starting a new S Corp:

1. Choose a Business Name: The first step in starting a new S Corp is to choose a name for your business. Make sure the name is unique and not already in use by another business. You can check the availability of a business name through your state’s Secretary of State website.

2. File Articles of Incorporation: To form an S Corp, you will need to file articles of incorporation with your state’s Secretary of State office. This document will establish the existence of your corporation and include essential information such as the company’s name, address, and the names of its initial directors.

3. Choose a Registered Agent: A registered agent is a person or company responsible for receiving legal documents and correspondence on behalf of the business. You will need to appoint a registered agent when filing the articles of incorporation.

4. Create Corporate Bylaws: Corporate bylaws are the rules and regulations that govern how your S Corp will operate. These bylaws should outline how the company will be managed, the roles and responsibilities of the directors and shareholders, and the procedures for making decisions within the company.

5. Obtain an Employer Identification Number (EIN): An EIN is a unique nine-digit number assigned by the IRS to identify a business entity. You will need an EIN for tax purposes, hiring employees, and opening a business bank account.

6. File Form 2553: To elect S Corporation status for tax purposes, you need to file Form 2553 with the IRS. This form must be filed within a certain timeframe after incorporating your business, so it’s important to be aware of the deadlines.

7. Hold Initial Shareholder and Director Meetings: It’s essential to hold an initial meeting of the shareholders and directors to adopt corporate bylaws, elect officers, and conduct any other necessary business.

8. Maintain Compliance: Once your S Corp is established, it’s crucial to maintain compliance with state and federal regulations. This includes keeping detailed financial records, filing annual reports, and adhering to the rules and regulations outlined in your corporate bylaws.

Starting a new S Corp can be a complex process, so it’s advisable to seek the guidance of a professional business services firm to ensure that all the necessary steps are taken. WCG Inc. offers comprehensive business formation services, including helping you start a new S Corp. With WCG Inc.’s expertise, you can rest assured that your new S Corp will be set up correctly and in compliance with all legal and tax requirements.

In conclusion, starting a new S Corp can be an attractive option for entrepreneurs looking to gain potential tax benefits and protect their personal assets. By following the steps outlined above and enlisting the help of a reputable business services firm like WCG Inc., you can launch your new S Corp with confidence and set the stage for success in the business world.