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10 Proven Strategies to Lower S Corporation Taxes

business s corporation Aug 12, 2022

10 Ways to Slash S Corp. Taxes. Proven Strategies for Saving BIG Money.

Reduce S Corporation Owner's Wages

As the owner of an S corporation, you can legitimately cut payroll taxes by thousands of dollars by paying yourself a lower salary and taking the rest of your income as distributions. But you need to make sure that you don’t drop your salary below what the IRS considers “reasonable compensation.”

S Corporation Covers the Owner’s Health Insurance Premiums

The S corporation can establish a health insurance plan for the owner-employee who owns more than 2 percent in one of two ways: 1) the S corporation pays the premiums for the owner-employee and family, or 2) the S corporation reimburses the owner-employee for the premiums.

Employ Your Child

The S corporation owner must pay payroll taxes on the child’s wages, but the family enjoys a decrease in income taxes. Each child can earn up to $12,000 without paying any federal income taxes.

Sell Your Home to Your S Corporation Before Converting It to a Rental Property

If you plan to convert your personal residence into a rental property, consider first selling the home to your S corporation. You can avoid taxes on the sale with the home sale exclusion of $250,000 gain ($500,000 if married). Additionally, you increase the rental property’s depreciable basis, which provides for greater depreciation deductions.

Reimbursement of Home-Office Expenses

When the S corporation reimburses the owner for home-office expenses, this reimbursement is a deduction for the S corporation and tax-free income to the owner.

Rent Your Home to Your S Corporation

An S corporation owner can rent his or her entire home to the S corporation for up to 14 days per year and get big tax deductions. The S corporation deducts the full amount of the rent, and the owner realizes the income completely free of income tax.

Reimbursement of Depreciation Expenses

The S corporation can reimburse the S corporation owner for depreciation expenses (as well as Section 179 expenses) related to business use of a vehicle, a home office, and other assets. This is a deduction for the S corporation and tax-free income for the owner.

Reimbursement of Vehicle Expenses

A qualifying “heavy” vehicle used for business can produce a substantial Section 179 first-year depreciation deduction. Plus, if your home office qualifies as a principal place of business, business related trips to and from that home office rack up business miles.

Reimbursement of Travel Expenses

An S corporation owner who incurs business-related travel expenses must submit an expense report and be reimbursed by the S corporation; other arrangements have disastrous tax consequences.

Cell Phone Expenses

When an S corporation provides an employee with a smartphone or similar telecommunications equipment primarily for non-compensatory business reasons, this is considered a working condition fringe benefit that is excludable from income.

The S corporation can reimburse the employee for the full cost of the phone expenses (including the personal use) and deduct this amount on the corporate tax return. The reimbursement is tax-free income to the employee.

If you want to improve your business situation, get assistance now. Schedule your free consultation today or give us a call at (218) 491-4002. We're here to help!

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