USA Trying to Estimate where S-Corp makes sense for me

Joined
Sep 6, 2010
Messages
6
Reaction score
0
Just looking for any general guidance on how I can estimate where the 'break even' point would be for me switching from sole proprietor (single-member LLC) to an S-Corp and how much potential savings there are.

I'm a real estate broker, located in VA (also doing business in DC & MD) working alone.

My business has been growing fairly rapidly as I have been aggressively reinvesting in marketing and also receiving repeat and referral business in addition to new business partners with approx.:

$56k gross / $25k net - 2014
$110k gross $70k net - 2015
$150k gross - $100k net in 2016 projected
$220k gross - $150k net in 2017 projected

So currently I'm single, 0 dependents taking standard deduction I figure using Intuit's tax caster the way I am set up as a Single-Member LLC in VA:

$100,000 pre-tax net
$30,579 federal taxes (30.58%)
$5,492 state taxes (5.5%)
$36,071 combined taxes (36.08%)
$63,929 after-tax income

And for 2017

$150,000 pre-tax net
$48,279 federal taxes (32.19%)
$8,367 state taxes (5.6%)
$56,646 combined taxes (37.79%)
$93,354 after-tax income



So I'm guessing it is far too late for me to elect to be treated as an S-Corp for 2016? Or is it? So here is what I *think* it looks like if I understand this correctly, let's consider if my business repeats $100k net and goes to projected $150k net as S-Corp:

$100,000 pre-tax net
$50,000 salary
$50,000 dividend distribution

$12,029 federal taxes on salary (24.06%)
$7,500 federal taxes on dividends (15%)
$19,529 combined federal taxes

$16,542 federal tax savings

$150,000 pre-tax net
$75,000 salary
$75,000 dividend distribution

$21,247 federal taxes on salary (28.33%)
$11,250 federal taxes on dividends (15%)
$32,497 combined federal taxes

$24,149 tax savings


So then there a few lingering questions:

1. Do I save on state taxes too or do they remain the same?

2. What would an average cost to pay for keeping books and filing taxes for someone like me be? I have about 30 vendors and about 80% of my transactions are simply automatic recurring charges to my business credit card which keeps things fairly simple.

3. Do I have a good handle on how this works or am I way off?

4. Is it too late for me to be treated as S-corp for 2016?

6. Would any other options like a c-corp make more sense? I generally hear S-corp is the way to go for someone such as myself.
 

DTA93433

VIP Member
Joined
Jun 14, 2016
Messages
113
Reaction score
10
Country
United States
1. You will save on State taxes too.
2. I normally charge $75/hr. for my clients for bookkeeping services.
3. You are "off' somewhat on your calculations. Very simply put if a "member" has basis (equity interest) in an s-corp and is taking out a "reasonable" salary; dividend distributions are non-taxable.
4. No. The law states than an s-corp election must be made by the 15th day of the 2nd month following it's inception (IRS Proc: 2003-43 ). Another option is (IRS Proc. 2007-62) which allows you to file an election with your 1st filing of Form 1120S (income tax return for an s-corp). Both IRS regs require the filing of Form 2553 (S-Corp Election by a Small Business)
5.(6.) An election as a C-corp would not be recommended due to "double-taxation" of it's profits by both the corporation and it's shareholders.

I have a spreadsheet (see attached) that shows the tax savings involved in the 1st $50k in sales.
 

Attachments

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top