More & more, I see tax pro’s marketing the S-Corp election for massive tax savings but just like anything else, it’s important to do your homework before letting someone convince you that their way is the right way. It’s not a one-size fits all, and in this article I’m going to share some of the drawbacks (dirty secrets) about S-Corps plus what you can expect to pay for various services associated with electing S-Corp status.
First, though,
An S-Corporation, or S-Corp, is a selected business structure, that one would choose at the time of forming their company. Choosing this structure allows pass-through taxation, meaning that profits and losses pass through to shareholders' personal tax returns, avoiding double taxation (i.e. the business being taxed AND you personally being taxed the income you pay yourself from the business).
On the other hand, the S-Corp...
What an exciting time in your business, if you have gotten to the point where you need to add to your team!
Sometimes you can hire contractors (to outsource some work) but sometimes it makes better sense to hire an employee. We’ll go over the differences between ‘independent contractor’ and ‘employee’ from the IRS’s standpoint, so you have all the info you need to make the right choice for your business. Next week, we’ll talk about the money side of hiring one vs. the other.
The IRS has a 3-factor approach to determining who is an independent contractor vs. an employee. Those 3 factors are: Behavioral Control, Financial Control and Relationship of the Parties.
A worker is considered an employee if the business has the right to direct and control the work performed, even if that right isn’t exercised.
These are examples of behavioral control that would indicate the worker should be an employee:
The...
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