Kiritsis & Associates

 

5 ways S Corp election can lower your taxes. . -- Kiritsis Law Firm Group 212 922 0005

Apr 27, 2021

Probably, the main reason a business owner chooses S Corp election, is for lower taxes.  Let's see, how that is so.

Lower self-employment taxes. By lowering the S Corp taxable income through a number of legal and tax maneuvers, as well as, passing more income to S Corp shareholders as distributions, rather than salary, S Corp could lower the self-employment tax.

Shifting tax liability to different years This could be done by making business decisions, which have sufficient economic substance (not merely, part of tax avoidance scheme), in a way that the S Corp taxable income would be greatest, when the shareholders have tax rates which are lower and/or possess offset tax losses that could be absorbed.

Shifting tax liability to different shareholders. S Corps could employee the services of shareholders, and pay salaries, based on time periods, that optimizes at the aggregate level, the lowest overall combined individual shareholder tax burden.

Shifting tax liability to different states. S Corps who have operations in many states, with one or more being in a lower tax state could try to organize their business operations, to have more of their S Corp taxable income, being taxed at the lower rate jurisdictions.

Qualified Subchapter S Corp Subsidiary (QSSS) A good way to lower taxes, by using a multitude of legal and tax maneuvers, such transfer pricing and creation of lack of marketability, just to name a few.

 

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