Tackling TikTok Part 3: “S-Corporation owners can save by paying minimal or zero employment taxes”

TikTok and other social media outlets often tout the potential for saving thousands of dollars in taxes by converting to an S-corp. While there is potential for significant tax savings, S-corps aren't always the answer for every type of business, especially just starting out, and it could end up costing you a lot more than what you save in the short term. If you are looking to set up a business the right way, consult a CPA.

CLAIM:

The owners of an S-corporation can save “thousands "of dollars a year on employment taxes by paying themselves minimal or zero wages and taking profit distributions.

FACTS:

S-Corporations do offer owners an advantage over single member LLCs when it comes to employment taxes, however this only applies to the income remaining after paying the owner a reasonable salary

• When a business has significant income after paying its owners’ salaries, the tax benefits can be substantial.

RULES:

• The IRS can determine a reasonable level of compensation and reclassify distributions as wages subject to employment taxes.
  • SHORT TERM REWARD - LONG TERM RISK:

Paying owners minimal or zero wages may save you money in the short term, but the IRS can assess interest and penalties on the unpaid employment taxes...

...potentially costing you as much as 2.5x the original tax

If you're a business owner in the New York Metro Area and need help making the best decisions for your business, request a consultation with our experienced accountants today. We look forward to providing you service.