If you are running a small business, you may want to think about operating as an s-corporation. Now this isn’t free money. There are some additional filing requirements to do this. These additional requirements shouldn’t deter you if you are or will be operating a small business with profits in excess of approximately $80,000 though.
Why? Going through with creating an eligible entity and electing Subchapter S status can minimize the owner risks and avoid some self-employment taxes that are levied on all of the profits of a sole proprietorship, regular LLC, or partnership.
Note: Self-employment taxes include the 15.3% combined Social Security and Medicare tax on around the first $120,000 of self-employment income. This is kind of like FICA from your previous life as an employee. It also includes a 3-4% Medicare tax levied on income above that $120,000 threshold.
Become an s-corporation allows to re-arrange your profits to save on taxes by classifying some as salary and some as distributions.
Our Hawaii S Corporation kit
If you are reading this thinking “Great! But what the heck is an eligible entity? How am I supposed to figure out these forms?” You are in luck. Our kit provides step-by-step instructions, as well as form examples, to create an LLC or corporation in the state and file the necessary paperwork federally.
The LLC version of the kit is available here:
Our corporation-base option is available below:
We typically recommend using the limited liability option. It has less red tape and is generally easier to operate plus gives some added tax flexibility.
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What Tax Returns are Required For a New Small Business Corporation: We mentioned some additional filing requirements above, check them out here.
What Are the Advantages of an S Corporation?: Be sure you understand what you are getting into before you make the election.
Your CPA vs. TurboTax: Some other suggestions on times to do it you yourself or seek out a professional.