USA Did tax reform eliminate S-Corp advantages for avg. Sole Proprietor?

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So when they were plugging along with tax reform all we heard were pass-through entity this and pass-through entity that so I thought definitely pass-through entities like S-Corps must have just got way better and I have always filed a schedule C and maybe could have saved a little in 2015 & 2016 by using S-Corp with a truly reasonable salary, but definitely could have saved about $5k in 2017 and my income is rising fairly rapidly so seeing my blunder of not electing in 2017 I was 100% planning to S-Corp before the deadline this year.

Yesterday, however, I started running numbers and it seems to no longer make sense unless either my methodology is way off or Intuit is way off. Maybe it saves some at the state level but I ran numbers and it seems like any savings would not cover the extra accounting fees and in some cases being an S-Corp would cost you. Now I am figuring a salary of no less than $75k as I plan to net no less than $150k so I think that is reasonable. Maybe if I tried doing a $40-50k salary it would see reasonable savings but I think that'd make me high audit risk which I don't care for. Can you tell me if I'm missing something it seems like the accounting costs would eat any tax savings and in some cases the S-Corp pays more.. see below:

Methodology - I have always found Intuit's tax caster to be an extremely simple and accurate forecaster for tax planning purposes. I plugged in various numbers into tax caster, will share my results below.

Basics - 34 year old, not married, no dependents, standard deduction did not fill in any additional info that could cause a change in taxation such as charitable gifts, mortgage interest, other income situations, etc.

For Schedule C it is as simple as business income and business expenses of that section of tax caster.

It took me a while to figure out how to mimic an S-Corp with it but this is what I did (tell me if I'm wrong):

  • Enter wages (W) paid by S-Corp in the w-2 wages box.
  • Multiply that number by 0.0765 to get the corp's SE tax responsibility. Lets call that X.
  • Take your gross income (G), subtract the wages (W), corp's half of SE tax (X), and other non-tax expenses (E) to find out what is left to distribute to shareholders. We'll call distributions Y.
Distributions (Y) are entered into Misc income NOT dividends because what TaxCaster calls dividends are qualified dividends and not taxable and as I understand it you pay normal federal tax, but simply eliminate payroll tax on your S-Corp distributions.

Therefore we enter Y into Misc Income and

Y = G - W - X - E because G = Y + W + X + E

Using Tax Caster's 2018 Forecast feature I get this:

$150k net Schedule C total fed tax (including se) - $38,809 (vs. $49,089 in 2017)

$300k net Schedule C total fed tax (including se) - $77,625 (vs. $99,833 in 2017, WOW!)

Pass Through Entity version:

W = $75k salary Y = $69,262 Misc-Income (this accounts for the 7.65% SE tax the corp paid on your behalf) Total Fed Tax including SE = $37,507 (vs. $38,809 Sch C filers at $150k net)

W = $100k salary Y = $42,350 Misc-Income (this accounts for the 7.65% SE tax the corp paid on your behalf) Total Fed Tax including SE = $40,874 (vs. $38,809 Sch C filers at $150k net)

$300K Net version

W = $75k salary Y = $219,262 Misc-Income (this accounts for the 7.65% SE tax the corp paid on your behalf) Total Fed Tax including SE = $76,537 (vs. $77,625 for schedule C filers at $300k net)

W = $100k salary Y = $192,350 Misc-Income (this accounts for the 7.65% SE tax the corp paid on your behalf) Total Fed Tax including SE = $89,112 (vs. $77,625 for schedule C filers at $300k net)

Did I mess up in my computations? Why should I do an s-corp if I'm not planning to claim a salary under $75k if my net earnings should be $150k-300k.. Did I do this wrong or are S-Corps only going to be advantageous to truly aggressive tax avoiders who are netting something similar to $150k+ and paying themselves a salary under $70k?

Maybe I am in error and by not entering business income and expenses into the section of TaxCaster and you lose the QBI deduction on an S-Corp using TaxCaster this way and it is actually still there? Maybe these advantages come into play that TaxCaster is not prepared to handle?
 
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Drmdcpa

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You are missing somethings. One big thing is you are not using a CPA to help you - stepping over dollars to save pennies.
 
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You are missing somethings. One big thing is you are not using a CPA to help you - stepping over dollars to save pennies.
Can you offer me any insight as to what I am missing or miscalculating apart from having someone do the actual forms?

As I've said in my other recent posts I'm actively seeking a CPA but I'm having trouble because I think the complexity of the state return side of my business might be something many CPA's are not that familiar with or confused themselves about, coupled with the size of the fees to be earned coming from a sole proprietor without employees rather than a multi-million dollar operation with dozens of employees on a payroll might make me small potatoes I am looking though at someone who is competent, reasonable, and willing to work with me.

In terms of actual federal savings of an s-corp under 2018 tax reform am I correct that if I don't plan to take a salary under $75k I will not save anything substantial even if I do the forms myself and I will most likely lose if I hire someone to do a S-Corp for me assuming I'm going to be looking at least a couple thousand if not a bit more?

If someone tells me to S-Corp and take a $100k salary as one CPA had suggested I should to avoid audit why would I do that if I can Schedule C in TurboTax and pay less taxes regardless of the CPA bills.

Same is true of Realtors if you hire an incompetent or unsavory Realtor who tells you what your property is worth on the low side you lose versus selling yourself even before commission..

I'm just doing my own research and I think it's wise for people to do research before making any significant decision whether it's selling/buying a house, deciding whether to incorporate or not, buying a car, choosing a surgeon, etc. it just makes sense because in any profession there are always only a few true experts and then a feathery mix of the good, average, below average and incompetent. So I might not be able to afford an expert as their reputation might have priced them out of my range and into the employment of the medium and large businesses but I'd at least like to find someone who knows what they're talking about. . I mean I'm happy to hire a CPA to do returns as long as their fees just equal the tax savings at least and its a wash but I'm not going to pay them if the net result is a negative because I can do a schedule C in an afternoon.. no I don't have any intention of learning or doing corporate returns so I just need to figure out if there is any actual savings to be had by hiring one because it will be a true gem of a CPA who will reveal to you if you can actually come out ahead without them as I'm proposing is potentially there..
 

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