New year, new tax season! The beginning of a new year is the perfect time to reassess your business and find ways to improve your bottom line, including reducing taxes. Aside from properly tracking expenses and taking tax deductions, there is one thing that you can do right now that can dramatically reduce your overall tax bill as a small business owner.
So what’s the one thing you can do to save thousands on your business taxes this year?
The answer: S corporation!
Electing to have your business taxed as an S corporation can potentially save you hundreds if not thousands of dollars on taxes.
Let me elaborate: There are four different types of tax classifications that commonly apply to businesses.
- Sole Proprietorship
If you operate your business as a sole proprietor or single-member LLC, you will be taxed as a sole proprietor by default. Similarly, if you operate as a partnership or a multi-member LLC, you will be taxed as a partnership by default. In those instances, the IRS essentially treats it as if the LLC doesn’t exist. Matter of fact, the business income is treated as personal income to the business owner(s). And business owners have to pay self-employment taxes on their income.
How does an S corp change that?
Well, when you elect to be taxed as an S corporation, you become both an owner and an employee of your business. Instead of paying self-employment tax on all of your income, only your salary as an employee is subject to that additional taxation. For many business owners, this can result in a much lower tax bill overall.
Tune in to this week’s episode of All Up In Yo’ Business to hear more on why an S-corporation can help you save thousands on business taxes. And be sure to subscribe to our YouTube channel for more All Up In Yo’ Business!
Want to save even more on taxes? Check out: Tracking Your Business Expenses.