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Should I Tax My Business as an S Corp?

Why would you choose an S corporation

Should I Tax My Business as an S Corp?

An S corp is a popular choice for small businesses and many aspiring entrepreneurs decide to register for an S corp to save money on taxes. If you are uncertain how to start an S corp in California, contact a reputable tax consultant who can guide you through the process of setting up an S corp and help you determine whether you are eligible to elect S corp at all. 

This is exactly what over 70 percent of small businesses do before making the transition to an S corporation: they reach out to professionals to help them understand what electing S corp entails and whether this is in their best interest. To get a better idea of why you should consider registering your business as an S corp in the first place, read on.

How will owning a small business affect your taxes?

First things first: although it may seem that the IRS will not pay too much attention to small businesses because it will rather focus on businesses which represent a source of considerable revenue, the opposite is true. Statistically speaking, IRS has recently been turning up the heat and conducting numerous tax audits of small businesses. 

It is therefore essential that you make an informed decision in the best interest of your business in terms of taxes, so as to minimize tax liability and maximize deductions.

What are the disadvantages of owning a small business?

Owning a small business is not without risks. Namely, when setting up your small business, you can anticipate that you will have to dedicate significantly more time to maintaining successful business operation. Your list of duties and obligations will inevitably become much longer. But most importantly, there are the financial risks. 

How do you reduce the financial risks of running a small business?

You can reduce the financial risks to a considerable extent if you make wise decisions. For instance, setting up your small business as an S corp is one way to save money on taxes in the long run. Consult a tax professional to understand this is a reasonable expectation. Namely, your small business needs to generate enough profit after you have paid yourself for the decision to switch to an S corp make sense. 

Why would you choose an S corporation?

An S corp is beneficial both on account of tax flexibility, some traditional advantages that corporations have to offer and perks of its own:

  • Limited liability protection
  • Pass-through taxation
  • Simple conversion to a C corp

Double taxation means that both your company’s profit and your personal income are taxed. An S corp allows you to avoid this by passing income to its shareholders. As mentioned above, an S corp allows you to save money on taxes. But how much money will you really save?

This is the question you need to ask yourself or consult a tax consultant about it. Namely, if your business does not yet generate enough profit for the S corp tax designation to make sense, you can put off changing the designation until that time.

When should Form 2553 be filed?

Aside from meeting the deadline, which is two months and 15 days after the beginning of the tax year, bear in mind that each business is specific. The fact that filing for an S corp is a wise call for one business does not mean it will be the best course of action for another.

Lean on us to clear your doubts

If you’re wondering when and how to start an S corp in California, you’ve come to the right place. David York’s Tax Service is where you will find a group of San Diego’s leading tax professionals and accountants who will go above and beyond to cater to all your business needs. We have the abundant experience to help you navigate through the process successfully. Allow us to spare you the energy-draining, time-wasting extra steps. Call today to schedule your appointment!