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*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, you are advised to consult with your own attorney, accountant, tax preparer, and/or other advisor regarding your specific situation or your client’s specific situation. The information and all accompanying material are for your use and convenience only.

00:00 Introduction
00:18 What is S-Corp
01:33 What is the purpose of your S-Corp Entity?
04:13 Dividend distributions
05:44 Accountable Plan Tax-FREE Reimbursement
10:40 Kids on payroll = $12,950 deduction
13:56 Fringe benefits for S-Corp Owners…
16:02 Section 127 tuition reimbursement under CARES ACT
19:25 Tax Planning vs. Tax Preparation…(read more)

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When it comes to tax planning for small businesses, S corporations have certain advantages over other business entities. An S corporation is a type of business structure that allows the company’s income, losses, deductions, and credits to pass through to its shareholders for federal tax purposes. This means that the company does not pay federal income taxes, but the shareholders are responsible for reporting the company’s income on their individual tax returns. Here are three S corporation tax strategies that can help business owners maximize their tax savings.

1. Reasonable Salary Determination:
One of the key benefits of an S corporation is that shareholders can receive both a salary and distributions from the company. The salary portion is subject to employment taxes, such as Social Security and Medicare taxes, while the distribution portion is not. Therefore, it is important for S corporation owners to determine a reasonable salary for their role in the company. Setting a reasonable salary can help minimize the employment taxes paid by the company while still allowing the owners to take advantage of the tax savings associated with distributions.

To determine a reasonable salary, business owners should consider factors such as the industry, the size of the company, the duties and responsibilities of the owner, and the company’s profitability. It is important to document the factors used to determine the salary to show that it is reasonable and comparable to what an unrelated third party would be paid for the same role.

2. Qualified Business Income Deduction:
The Tax Cuts and Jobs Act of 2017 introduced the qualified business income (QBI) deduction, which allows eligible taxpayers to deduct up to 20% of their qualified business income from a pass-through entity, including S corporations. This deduction can provide significant tax savings for S corporation shareholders, but there are certain limitations and eligibility criteria that must be met.

To qualify for the QBI deduction, the business must be considered a qualified trade or business, and the taxpayer’s taxable income must be below certain thresholds. There are also specific rules for calculating the deduction, especially for businesses with higher income levels or in certain industries. Business owners should work with a tax professional to ensure they meet the requirements for the QBI deduction and maximize their tax savings.

3. Charitable Contributions:
S corporations can also take advantage of tax savings through charitable contributions. Unlike regular C corporations, S corporations are not able to deduct charitable contributions as a business expense. However, S corporation shareholders can still benefit from the tax savings associated with charitable giving.

One strategy for S corporation shareholders is to make charitable contributions personally and then claim the charitable deduction on their individual tax returns. The shareholder can receive a tax benefit for the charitable contribution as an itemized deduction on their personal tax return. Additionally, the shareholder can receive a tax-free distribution from the S corporation equal to the amount of the charitable contribution, effectively allowing the company to indirectly support the shareholder’s charitable giving.

In conclusion, S corporations offer unique tax planning opportunities for business owners to minimize their tax liabilities and maximize their tax savings. By implementing strategies such as reasonable salary determination, taking advantage of the QBI deduction, and leveraging charitable contributions, S corporation shareholders can strategically manage their tax burden and improve their overall tax position. It is important for business owners to work with a qualified tax professional to develop and implement these tax strategies effectively and in compliance with tax laws and regulations.