Are you tired of overpaying on taxes as a 1099 contractor or small business owner? You’re not alone. Many business owners don’t realize they could save thousands of dollars each year simply by optimizing their business structure.
If you’re operating as a sole proprietor or an LLC, you may be paying too much in self-employment taxes. Here’s the good news: electing S-Corp status could significantly reduce your tax bill—and it’s easier than you think. Let’s talk about why this happens, how to fix it, and how a trusted Austin, Texas CPA like Insogna CPA can help you start saving.
Why Are You Overpaying Taxes?
If you’re running your business as an LLC or sole proprietor, all your net income is subject to self-employment taxes—at a hefty 15.3%. While this may seem unavoidable, it doesn’t have to be.
The problem is simple: without an S-Corp election, you’re paying self-employment tax on every dollar you earn. That’s money you could be using to grow your business or invest in your future.
What’s the Fix? Electing S-Corp Status
Electing S-Corp status for your LLC is one of the smartest moves you can make to lower your tax bill. Here’s how it works:
Split Your Income
When you choose S-Corp status, your income is divided into:
- Salary: This is subject to payroll taxes.
- Distributions: This isn’t subject to payroll taxes.
This split reduces the portion of your income exposed to the 15.3% self-employment tax, which means you keep more of your money.
Real-World Example: How Much Could You Save?
Let’s say you run a small business in Austin and earn $120,000 annually as an LLC:
- As an LLC, your entire $120,000 is subject to self-employment tax. That’s $18,360 in taxes!
- With S-Corp election, you pay yourself a reasonable salary of $50,000 (subject to payroll tax: $7,650) and take the remaining $70,000 as distributions (not subject to payroll tax).
Your Savings: $18,360 – $7,650 = $10,710 saved annually.
How Do You Elect S-Corp Status?
Electing S-Corp status involves a few steps, but don’t worry—it’s manageable with the right help.
- File Form 2553 with the IRS: This officially elects S-Corp status for your LLC.
- Set Up Payroll: Pay yourself a reasonable salary to stay compliant.
- Maintain Compliance: File payroll taxes and S-Corp tax returns on time.
If this sounds complicated, you don’t have to do it alone. A small business CPA in Austin like Insogna CPA can guide you through the entire process, ensuring you get it right the first time.
What Other Benefits Come with S-Corp Status?
It’s not just about saving on taxes. S-Corp status comes with additional perks that help you grow your business and manage your finances:
- Retirement Savings: Maximize contributions to a Solo 401(k) or other retirement accounts.
- Professional Image: Operating as an S-Corp enhances your credibility with clients and partners.
- Reduced Audit Risk: With proper guidance from a CPA South Austin, your business is less likely to attract IRS scrutiny
Why Work with Insogna CPA?
At Insogna CPA, we know how important it is for you to save money and run your business efficiently. That’s why we’ve helped countless business owners like you in Austin and beyond take advantage of S-Corp tax savings.
Here’s how we can help:
- Calculate Your Savings: We’ll review your income and estimate how much you can save with an S-Corp election.
- Simplify the Setup: From filing the paperwork to setting up payroll, we handle the details so you don’t have to.
- Ensure Compliance: Stay on top of payroll taxes and filings with ongoing support.
- Tailor Advice to Your Needs: As one of the top accounting firms in Austin Texas, we make sure your S-Corp strategy works for your unique goals.
Start Saving Today
Why keep overpaying taxes when you don’t have to? Electing S-Corp status could save you thousands every year, and Insogna CPA is here to help you make it happen.
Schedule a consultation with Insogna CPA today and discover why we’re one of the best CPA firms in Austin for small businesses. Let’s start putting more money back into your business and your future.