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?
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.