So you've talked to your CPA about the S-Corp before and received an emphatic "NO" from them about it. But did you receive a REASON for that no? If you did, it likely wasn't a very specific answer, but luckily for you, we've heard all the excuses before, and we're here to debunk them.
"It's too complicated to manage."
Translation: It's too complicated for THEM to manage. For you, the business owner, there's actually not much more you need to do differently than being a sole proprietor.
S-Corp is a pass-through entity, so as long as you're maintaining a bank account for the business and paying yourself a payroll, your day-to-day is relatively unchanged.
More on pass-thru entities (like disregarded entities) here.
"It's too expensive."
Translation: it's too expensive for THEM to manage. There is some merit to this argument; your average CPA charging by the hour for bookkeeping and payroll services would cost you hundreds, if not thousands, per month to keep your S-Corp up to date. However, this is only true if you're using the old-fashioned maintenance methods, i.e., tracking your transactions with Quickbooks Desktop or spreadsheet, manually processing payroll, and doing all the work themselves instead of leveraging less expensive labor sources and technology to get the work done.
"You won't get enough benefit from it to outpace the costs."
Translation: you'll have a little value with THEM. At a certain income level, using a service like Formations will show you a ton of value. We are on record saying that if you're making less than $60k per year (gross income), then your CPA is likely correct. You won't get enough benefit from it today, but that doesn't mean you shouldn't be thinking about the switch for the future.
Let's say you've been in business for a couple of years, and your income is increasing steadily but slowly, and you're probably about to cross that 60k threshold, but you're not sure. Nothing stops you from beginning to train yourself to treat your business like a business right now.
This means making sure you have an EIN (Employer Identification Number), an LLC, and a business bank account to run your activity through. This way, you will be ready when your income reaches the right place to "flip the switch" and convert to an S-Corp to turbo-charge your tax savings.
Not a Formations customer yet?
Do you want to learn more about how to save on taxes as an S-Corp? Reach out to us, we are here to help!
