S-Corp v. Single Member LLC – Save Tax plus Reduce Audit Risk!

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Team eeCPA

At eeCPA, we prefer to form Limited Liability Companies with the State and then make a tax-election to be treated as an S-Corp for income tax reporting purposes.

Why?  A limited liability company is a more flexible entity structure from a tax perspective. You can choose to be taxed as a Sole Proprietor (if only one member) or a Partnership or an S-Corp or a C-Corp. Many options & no annual filings or filing fees with the Arizona Corporation Commission!

What are the benefits of an S-Corp compared to a Single Member LLC?

  • Potential for Self-Employment Tax Savings (15.3%)
  • Reduced Audit Risk – 10% of Sole Proprietors filing Schedule C with their Individual Tax Return (1040) are audited v. 0.6% of S-Corps


How to save the most tax with the least risk using an S-Corp strategy?

Compensation Plan – Payroll Strategy

Pay all officers a reasonable salary!

Officers should take a reasonable salary from the business. Elizabeth will recommend a compensation strategy for you!

Investment Earnings Distributions – Dividend Strategy

Make dividend distributions to shareholders no more frequently than quarterly.

Distributions do not have to be equal or distributed on a specific date each quarter, but they should not be taken more frequently than quarterly. Otherwise, the IRS often considers that the distributions are disguised compensation. The risk: if the IRS is successful in classifying the distributions, you could wind up with a substantial tax bill for the 15.3% in Social Security & Medicare taxes on the deemed compensation, plus penalties that can approximate as much as 50%. eeCPA will assist you with being sure that you maintain compliance and limit risk of exposure to taxes & penalties.