Business Structure Series: Thinking of forming an S Corp?

Could switching to an S Corporation save your business thousands in taxes? In this episode of The Cash Flow Factor, Dawn Porthouse breaks down how S Corps work, who they’re really for, and the costly mistakes to avoid.

You’ll learn:

• How S Corps reduce self-employment taxes

• What “reasonable salary” actually means

• The compliance traps that catch new S Corp owners off guard

• Whether an S Corp is better than an LLC for your situation

📥 Grab your free Business Structure Cheat Sheet at SmartBizCheatSheet.com 🎧 Full episode archive at thecashflowfactor.com

Episode Transcript

(00:01):
Welcome back to the Cash Flow Factor.
I'm your host, Dawn Porthouse, here to help business owners, solopreneurs and freelancers make confident decisions for their businesses.
Before we dive in, make sure to grab your free business tructure cheat [e-mail].
It's your go-to guide for comparing all the main business structures, including S-Corp, and we'll help you follow along as we explore today's topic.

(00:27):
if you miss our earlier episodes on sole proprietorships, partnerships, or LLCs, be sure to check them out after this one.
The pack with insights to help you avoid common pitfalls.
Today we're diving into S Corporations or S-corps.
A popular choice for business owners looking to save on taxes and enhance the professional credibility.

(00:48):
By the end of this episode, you'll have a clear understanding of what an S Corp is, its benefits and its potential downsides, so you can decide if it's the right move for your business.
let's start by clearing up a common misconception.
An S corporation isn't a type of company, it's a tax classification.
You can choose for your business, usually for an LLC or corporation.

(01:13):
what's the main draw? With an S corporation, your business profits and losses flow directly to your personal tax return, which can save you money on self-employment taxes.
plus it helps you avoid the double taxation that C corporations face.
Here are some common challenges with S corporation.
More paperwork you need to maintain accurate records, run payroll and follow formal procedures.

(01:40):
There's also a salary requirement.
The IRS requires you to pay yourself a reasonable salary.
Next, we have ownership limits.
S corporations can't have more than a hundred shareholders and all must be US citizens or residents.
There's also state specific rules.

(02:00):
Some states impose additional fees or requirements for scorp, and there's greater complexity.
Managing an S corporation is more involved in simpler structures like slow proprietorships or LLCs.
Understanding these challenges can help you decide if the benefits outweigh the drawbacks for your business.

(02:21):
So how does the S Corp compare to other common business structures? Here's a quick summary.
Sole proprietorships are simple.
And inexpensive to set up, but offer no personal liability protection Partnerships allow shared ownership to come with shared liability and potential conflicts.

(02:42):
LLCs provide liability protection and tax flexibility, making them a popular choice for small businesses.
S Corp offer tax savings and professional credibility for require more paperwork and compliance.
C Corp are ideal for larger businesses or those seeking investors, but face double taxation and complex regulations.

(03:05):
So not sure if the S corp is right for you.
Here are some questions to consider.
One, does your business have consistent profits often around a hundred thousand or more annually? Two.
Are you comfortable with the additional paperwork and compliance requirements? Three.
Do you want to save on self-employment taxes by splitting your income between salary and distributions? If you'd answered yes to any of the above questions, an S-Corp might be a great fit.

(03:35):
but remember, every business is unique, so consult with a professional before making a decision that wraps up today's look at S Corporations.
Remember, the right structure isn't just paperwork, it's the foundation for your growth.
S Corporation offers a balance of tax savings and professional credibility, making it a great choice for many small business owners.

(03:58):
Don't forget to download the free business structured cheat sheet at smart viz cheat sheet.com.
It's packed with practical tips and clear comparisons to help you make a confident decision.
And keep listening, because once we finish this series, I'll be unveiling something brand new to help you build not just a structure, but a whole business blueprint.

(04:19):
Until then, keep building wisely.