Good News for S-Corps

Tax reform gives you a new 20% Section 199A deduction on pass-through income.  But be aware the IRS requires that you pay yourself "reasonable compensation." If you don't, you can torpedo your deductions and be forced to pay extra taxes and penalties.  Here are 3 tips:

Reasonable Compensation.

Paying yourself "reasonable compensation" is so important. Reasonable compensation is generally considered to be what you'd pay for a third party to perform the services that you provide. If you fail to pay yourself reasonable compensation, the IRS can “recharacterize” your S corporation as wages. This makes you and your corporation liable for all payroll taxes.

Section 199A

Your salary affects your Section 199A deduction. Your W-2 reasonable compensation factors into your Section 199A deduction in two ways. It's important that you fully understand these factors.  To qualify for the full 20% deduction on your qualified business income under new tax code Section 199A, you need defined taxable income equal to or less than $157,500 (single) or $315,000 (married).  If your taxable income is greater than $207,500 (single) or $415,000 (married), you don’t qualifor the Section 199A deduction unless you have wages or property.

Salary Adjustments

Reducing or increasing your salary can be dangerous. Both strategies come with significant risks. What you should want to pay yourself is a Goldilocks salary. Not too much. Not too little.  Creating the 'reasonable salary' gives you two benefits:

  • A savings on your self-employment taxes
  • A Section 199A deduction

Summary

The new 20% deduction on qualified business income gives high earners who

  • are not in the out-of-favor specified service trades or business groups (doctors, lawyers, accountants, athetes, etc.),
  • pay little or no wages, and
  • own little or no depreciable property

an additional reason to switch to an S-Corp as their operating entity.

To find out how this would work for your unique situation, contact us for a Business Entity Analysis.  We'll work up all the numbers and give you the best options for you!

3 Reasons Your Business Needs a Strong Financial Partner

Whether you are a new business start-up or a business with years of history, the most important aspect of your business is the financials. Many business owners burn out because they try to wear too many hats or just don’t have the time or expertise to properly manage their finances. In this article, we’ll discuss the value of having a strong financial partner to handle the small business accounting, tax, and financial needs of your business.

Rule #1: Engage a Financial Partner Early in Your Business

When you start your business, a strong financial partner, like Emerald Financial Partners, can help ensure that you don’t make common mistakes. Setting up your Quickbooks properly, reconciling bank statements, tracking expenses, and creating a balance sheet are critical elements. If you decide to get a loan, you’ll need to have all of these items in order, and the better organized you are, the higher the likelihood that you’ll get your loan!

Rule #2: Outsource Accounting

As your business grows, you may need additional small business accounting services to manage the financial aspects of your company. Rather than investing in a full-time employee, outsourcing your accounting functions can often provide you with a higher quality of services, redundancy, and access to additional services, as you need them.

Rule #3: Remote CFO

Once your business achieves a certain level of success, you will need the financial expertise that will foster growth and help you strategically plan for the future. The remote CFO platform of small business accounting services that we offer at Emerald Financial Partners is a perfect choice. Our team works with you to oversee:

  • Accounting
  • Payroll and bookkeeping
  • Business financial strategies
  • Track and monitor expenses
  • Increase profitability
  • Streamline accounting systems
  • Provide you with accurate financial statements
  • Full-service accounting and compliance
  • DCAA compliance
  • Unlimited access to financial experts

To learn more about everything that Emerald Financial Partners has to offer you and your business give us a call to schedule a meeting today!

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