I think the big thing you're currently missing is the QBI deduction (depending on your income if you are phased out, etc). If not above thresholds, inside an S Corp only the 40K would be eligible for the 20% QBI Deduction, whereas as on a Schedule C, the full 120K would.

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Posted by Puffoluffagus

Savannah, GA

Member since Feb 2009

6126 posts

Posted on 12/9/22 at 8:43 pm to TheTaxManCometh

quote:
I think the big thing you're currently missing is the QBI deduction (depending on your income if you are phased out, etc). If not above thresholds, inside an S Corp only the 40K would be eligible for the 20% QBI Deduction, whereas as on a Schedule C, the full 120K would.

Was going to mention the same. In the past what may have been slam dunk file as a s-corp, With the QBI deduction on sole prop, it can make s-corp less attractive as the tax savings may not be nearly as much as you think especially if theres any concern for an audit risk with the reasonable salary stipulation.

Best thing is to have your cpa crunch the numbers and go from there.

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Posted by texn

Pronouns: Y'All/Y'All's

Member since Nov 2019

3525 posts

Posted on 12/10/22 at 1:55 pm to TheTaxManCometh

quote:
I think the big thing you're currently missing is the QBI deduction (depending on your income if you are phased out, etc).

This.

Plus there is a tax court case that says if the income your S corporation earns is for services rendered, then the "distribution" portion is subject to SE taxes. Don't remember the name of the case, but involved a law firm where lawyers tried to take minimal W-2 salaries and the rest in owner distributions. Tax court said the distributions were subject to SE tax.

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