6 Common Questions About S Corporations in Florida
6 Things You Need to Know About S Corporation Election in Florida
There are a lot of misconceptions out there about S corporations in Florida. For example, many business owners don’t realize that it isn’t a type of business entity. Rather, an S corporation is a tax status that an LLCs can elect in order to enjoy certain tax benefits. However, they won’t be beneficial to all businesses in all situations, either. Let’s get into what that means for you, your business, and your taxes below.
1. How Can I Minimize My Taxes with a Florida S Corporation?
Before you try minimizing your taxes using an S corporation, you need to make sure that you’re bringing in enough revenue for an S corporation election to benefit your business. For an S corporation to work effectively, your business needs to be making between $30,000.00 and $60,000.00 after accounting for expenses. Otherwise, the cost of your S corporation status is going to outweigh your potential savings.
For example, let’s say that you’re the sole owner of a business that makes $160,000.00, with $60,000.00 of that going towards expenses such as marketing, accounting, and travel. This leaves you with $100,000.00 in net revenue. If you then pay yourself a salary of $50,000.00, you’ll pay 7.5% on self-employment taxes while the business is responsible for paying another 7.5% on your self-employment taxes as well, resulting in payroll taxes of about $7,000.00. You can then take the remaining $50,000.00 as a distribution of the company’s profits. As an S corporation, you won’t be subject to the 15.3% sales tax on these profits, which saves you about $7,000.00.
2. How Do I Know What I Owe for Personal and Business Taxes?
While you should definitely get together with a trusted CPA to advise you on all tax and payroll matters, there are several software companies that can help you out, too. Services like Quickbooks online will provide you with financial reports for you and your CPA to calculate your quarterly taxes, while something like onpay.com can help you figure out your salary. You can send invoices with both products.
3. How Do Business Deductions Work for Florida S Corporations?
Essentially, deductions are any and all expenses related to your business. You can learn more about them here.
4. What Is Considered a “Fair Salary” if I Am Also Collecting Dividends?
A fair salary is one that is reasonable for any individual working in a similar position within the same industry. Unfortunately, there’s no calculator that you can use to give you an exact number, so you’ll want to base your salary on the recommendations of your CPA. If the IRS thinks that your salary is suspiciously high, then they’ll ask you for justification. The amount you’ll take largely depends on your CPA’s interpretation of the IRS’s tax formula and your own personal risk profile.
5. Will I Pay Taxes Based on the Florida S Corporation’s Profits or Net Income?
Taxes for your S corporation are calculated off its net income rather than its profit. An S corporation also allows you to deduct paid wages as a business expense – even those wages that you pay to yourself.
6. How Often Will I Pay Taxes on my Florida S Corporation?
You will need to pay taxes for your Florida S corporation on a quarterly basis. This can all be done online. The amount you’ll need to pay depends on your tax status and what deductions you claim on your returns.
7. Do I Need Errors and Omissions Insurance?
Absolutely! Also known as professional liability insurance, E&O insurance is especially important for individuals and businesses that provide professional services. While no one plans on getting sued, E&O insurance helps mitigate the costs of a potential negligence lawsuit and any damages awarded as a result. The best coverage for your S corporation will depend on your specific industry. You’ll still want to shop around for a competitive price from a reputable insurer with at least a B+ rating.
Convinced an S corporation is the best choice for you and your business? Contact us today for help with S corporation election or S Corporation Shareholders’ Agreements by scheduling a consultation or by calling (727) 279-5037.