Date: May 6, 2021
Did you know that S Corporations (S Corps) could save you a TON in taxes? Aside from the asset protection benefits, most often than not you can usually cut your effective tax rate in half. And, if that weren’t enough, you could save even more with these little-known S Corp Secrets that could reduce your taxes even further.
Reducing S Corp Owner Wages
You pay FICA taxes on the wages you pay yourself as an owner of an S Corp (through your paycheck). The IRS requires you to pay yourself a ‘reasonable compensation, not a penny more. We can help you figure out what that ‘reasonable’ amount is that is audit-proof.
Deduct the Cost of Owner Health Insurance
If you are the owner of an S Corp you can deduct the cost of your health insurance, which reduces net income, which reduces total tax!
Hire Your Children
If your kiddo is old enough to help in the business, you could exclude up to 12,000/year of income you provide to your child. Put the money in a joint account with the child to save for college, spend on school supplies and tuition, or even get groceries for the child. They’re expenses you are going to incur anyway, why not get the tax benefit as well while teaching your little angel how to run a business. Bam! Two birds, one stone.
Sell Your Home to Your S Corp
Yes, your S Corp can own your home, and probably should (depending on your individual circumstance of course). If your home has appreciated in value since you bought it, you can get both some tax-free income and a step-up in your depreciation basis by selling your home to your S corporation.
This little-known tax trick can save thousands, but it sounds intimidating, right? It’s not as difficult as it sounds, and when you do it correctly there is no risk of losing in an audit.
Rent Your Home to Your S Corporation and Get Tax-Free Income
There is a gem of a tax benefit originally created by golf lovers. It’s known in the tax industry as ‘The Augusta Rule’. The Augusta Rule, known to the IRS as Section 280A, allows homeowners to rent out their homes for up to 14 days per year without needing to report the rental income on their individual tax returns. There are regulations that need to be carefully followed with this tax strategy, but if you play by the rules, you could grow your wealth quickly!
Reimbursement of Home-Office Expenses
When an employee receives reimbursements through payroll, it’s not considered income, and therefore is not taxable. When a company reimburses an employee for home office expenses they get a business deduction for that which reduces net income and tax due.
Contributing to Retirement (Deductible in 2020)
This tax-reducing opportunity allows you to contribute to your retirement, tax-free while still deducting the cost from total income.
Reimbursement of Vehicles Expenses
Your business should pay you back for using your personal vehicle for business purposes. There are tons of apps out there to help you keep business and personal trips separate, and we can help you set up fail-proof systems to track, reimburse, and deduct business-related vehicle expenses the right way.
Reimbursement of Travel Expenses
There may be more opportunities here than you think. Did you know that you are allowed to deduct the cost of lodging, meals, mileage, fees, tolls, rentals, etc. If done correctly, you can reimburse yourself for these costs while still getting a tax deduction for it.
Don’t sell a business vehicle
While it may seem obvious, you’d be surprised how many business owners sell a business vehicle rather than trade it in or lease it out. When you’ve captured bonus depreciation (you wrote it off the year you bought it and saved a ton in taxes), you would have to ‘recapture’ that depreciation through a sales transaction. To make it short and sweet, don’t sell unless you have a clear strategy!
I sincerely hope that these S Corp Secrets are helpful to you, and help you save more in taxes than you ever have before. These are just a few of the tax strategies we use for our clients to save millions in overpaid taxes every year. It is my personal mission to help business owners pay less in taxes and grow their businesses, so they can achieve the lifestyle and financial goals they desire. If you’d like help with any of these tax tricks, I’d be honored to help. Click here to book a call with me.