re: Let’s Discuss Filing as S Corp vs SP

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.

I'd think you do it just for the liability protection if this is a long term thing. If you're a SP, they could come after personal assets if something happened.

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.

It is possible to elect to have an LLC fillr as a Sub - Chapter S Corp for tax purposes and avoid all the legal bull crap associated with a corporation. All that is nneeded is to submit a Form 8869 to the IRS then you're able to file an 1120S and qualify for the tax benefits others have mentioned here.

Perhaps your CPA was referring to doing something like this when he said it wasn't worth setting up an S-Corp. It's what would do.

quote:

---

What’s the deadline to make an scorp so that the tax benefits apply to the tax year? Eg, can I form one this year, comply with all the requirements, and enjoy the tax benefits for tax year 2022?

---

There is a provision for a late election that you can file with a tax return. There are some statements you have to attest to.

LINK

As long as you make all the proper statements on the 2553, AND it's the first year you are late (i.e. 2022) then I've never seen it denied. This is because you will pick up the 2022 K-1 on your 1040.

When you are more than a year late, that's when the issues start.